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HM Treasury

A brief history of HM Treasury

The origins of HM Treasury

Today's Treasury dates from around the Norman Conquest. The first "Treasurer" was probably "Henry the Treasurer" who owned land around Winchester, where most of the royal treasure was kept under both the Anglo-Saxons and the Normans. Henry is referred to in the Domesday Book and is believed to have served William the Conqueror.

For the majority of the medieval period the office of the Treasury was within the Exchequer (responsible for managing the royal revenue in addition to collecting and issuing money). As is often the case, wars are expensive and in 1433 war with France led to a deficit of £30,000 - the equivalent of over £100 billion today. Money that the Treasury received was recorded by using tallies. These were sticks with notches marked on them according to the amount of money involved. The stick was cut in two and one half given to the Sheriff as receipt for the money. They were in use until 1834 when a fire destroyed the Palace of Westminster.

Debt and more debt

Monarchs tended to bypass the Exchequer because of its ineffectiveness until it was reformed by the Lord Treasurer Winchester and later, his successor, Lord Burghley, under Elizabeth I. By 1584, the deficit had been turned into a surplus equivalent to one year's revenue. In contrast, the Stuarts failed to enforce limits on inflation, war, corruption and extravagant tendencies and were forced into debt again. After the restoration, Charles II, in an effort to rectify the situation appointed a Commission to replace the Treasurer. George Downing (who later built Downing Street) was appointed Secretary to the Commission. Downing was instrumental in major reforms and paved the way for the Treasury to break away from the Exchequer. The principle of the Treasury approving all expenditure was passed at that time and continues to hold today.

Downing was also responsible for raising additional money in the form of selling marketable Treasury orders with a guaranteed repayment date; the origin of our UK Government bonds. During the period tax collection was nationalised under the Commissioners who would then report to the Treasury. In 1694 the Bank of England was founded initially to manage debt finance and in due course came to issue interest-bearing transferable Exchequer bills, payable on demand.

The creation of the National Debt

The early 1700s saw the meteoric rise of the banking and financial markets, with the emerging stock market revolving around government funds. The ability to raise money by means of creating debt through the issue of bills and bonds heralded the beginning of the National Debt.

Improved controls over public spending ensured that creditors were more willing to lend money to the government. By the 1730s an early version of the public spending survey and the annual Budget had been established. In its evolution the Treasury had to learn some valuable lessons. In 1711, the Treasury established a scheme whereby it secured government debt by the authorisation of its subscription into the capital of the South Sea Company, with government creditors in return holding stock in the company. In 1720 the South Sea bubble burst and thousands of investors were affected; such was the outrage that the Chancellor of the Exchequer was sent to the Tower of London. The important lesson learnt was that the National Debt (and public finances) had to be managed prudently. The Exchequer was finally abolished in 1833 when the Treasury became a ministerial department under the Chancellor of the Exchequer.

The twentieth century arrives...

The threat of World War One pushed British banks into crisis; exacerbated further as half the world's trade was financed by British banks and as a consequence international payments dried up. In response to this crisis, John Maynard Keynes (the renowned economist), persuaded the Chancellor Lloyd George to use the Bank of England's gold reserves to support the banks, which ended the immediate crisis. Keynes stayed with the Treasury until 1919. The war years of 1914-18 had seen an increase in the National Debt from £650 million at the start of the war to £7,500 million by 1919. This ensured that the Treasury developed new expertise in foreign exchange, currency, credit and price control skills and were put to use in the management of the post-war economy. The slump of the 1930s necessitated the restructuring of the economy following World War II (the national debt stood at £21 billion by its end) and the emphasis was placed on economic planning and financial relations.

The 1950s and early 1960s saw an increase in authority delegated to departments to spend within predetermined totals although the relatively high period of inflation in the 1970s and 1980s led to the rise the national debt in nominal terms from £36 billion in 1972 to £197 billion in 1987 and then to £419bn at March 1998. Although figures for the national debt are rising sharply in nominal terms it has fallen as a % of GDP from a peak of about 250% of GDP at the end of World War II to around 50% in 1998.

Which leads us to…

The significant decision in 1997 to transfer monetary policy to the Bank of England while the Treasury retained control of fiscal policy led to the creation of the United Kingdom Debt Management Office (DMO) as an executive agency of the Treasury. Since April 1998, gilts have been issued by the DMO. Other than gilts (and Treasury bills, see below) the National Debt also includes the liabilities of National Savings & Investments and other public sector debt and foreign currency.

In April 2000 responsibilities for Exchequer cash management was transferred to the DMO and represented the conclusion of the Government's restructuring of the management of monetary and debt policy launched by the Exchequer in May 1997. The DMO assumed responsibility for issuing Treasury bills (very short–dated securities) from this date. In July 2002 the operations of the Public Works Loan Board (PWLB) and the Commissioners for the Reduction of the National Debt (CRND) were integrated with the DMO. The PWLB lends to local authorities for capital purposes and the CRND's principal function is to manage the investment portfolios of certain public funds. PWLB and CRND continue to carry out their long-standing statutory functions within the DMO.


A brief explanation of where these often used terms come from:

Exchequer: The name "exchequer" derives from the chequered table (based on the abacus) that was used from about 1110 for calculating expenditure and receipts. Exchequers were normally held twice a year when the Chief Justice, the Lord Chancellor, the Treasurer and others sat round the chequer board, auditing the accounts of each local sheriff who collected and spent money on behalf of the crown.

Budget: The word "budget" derives from the term "bougette"- a wallet in which either documents or money could be kept.

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