The New Statesman Profile - Gus O'Donnell

Who but the most skilful mandarin could work for Lawson, Major and now Brown?

"It's that man again,
it's that man again" - ITMA, BBC Radio, 1939-1949

In the midst of wartime grimness, the ITMA carnival was a much-needed antidote to Hitler-induced human tragedy. But ITMA characters occur in all eras, not least in the great travelling circus of British public life. Gus O'Donnell, just four years ago John Major's closest press officer, the messenger of both the ERM and back-to-basics, recently fully reinstalled at the nation's controls as in effect our chief Whitehall-bred economist, fits the bill more than ever. Amid the blitzkrieg-stricken dugouts of 1990s politics, O'Donnell, 46, seems to have remained cheerful and hit the jackpot. Again.

How can all this be? How can John Major's favourite bureaucrat be back at the centre of a Labour government? Not only is O'Donnell directing Treasury macro-economic policy - especially spending - but he then apparently skips nonchalantly across town to join the Bank of England's high priests to help set interest rates. That makes him, definitively, the only senior decision-maker in the country with direct input on all areas of economic policy. O'Donnell, who was so often first into Major's flat each morning with the latest consignment of slings and arrows, is now suddenly pivotal for both the price of your house and the security of your job. When Major finally departed from No 10 to watch Surrey play cricket, one story is that he left Tony Blair a bottle of champagne on the desk. He also, indirectly, left him O'Donnell. Is O'Donnell, in cold war parlance, a Conservative sleeper? What on earth is going on?

The strong likelihood is that O'Donnell sleeps for no one. Rather, he acts for himself. The entire essence of the successful bureaucrat through the eons is precisely that: the object of the game is to face up to changing times without those changing times changing the bureaucrats themselves. One large reason for taking the job was always that you'd be there for ever. O'Donnell has succeeded in the most vital way possible. He has outlasted the flood.

Few dispute that he is a great guy. The personal compliments are duly legion. Jeffrey Archer described his style as "very warm". One leading lobby journalist called him "an excellent man"; a fellow economist called him "an unbelievably nice guy who was pretty universally liked". Another colleague termed him "great to work with." Above all, the feeling is that he is normal, one of us.

This ethic helps nowhere more than in modern-day Whitehall, where the image of gruesomely delightful senior officials seen on Yes Minister was largely out of date even on the series' first venture 20 years ago. It is certainly almost utterly extinct now. The lazy lunches in the Pall Mall clubs have almost completely gone, as have the shooting weekends in Scotland. Sherry sales are well down. The new Whitehall is an arena where John Major's spiritual children indeed prosper, a place where the academically bright from beyond the public school have their best shot at real power, a venue for advancement for a bureaucratic Mittelstand comprising folks who find their way around a website at least as adeptly as they navigate a wine list. They hail mainly from south London, from Dulwich, Vauxhall, Clapham South, swarming each morning through the grime-ingrained portals of the Northern Line or over Westminster Bridge to take their - often extraordinarily influential, but almost completely unmarked - place in national life.

Few represent them better than O'Donnell, a public servant who, colleagues say, has long been sublimely equipped to fit the shifting whims of masters as diverse, but equally admiring of him, as Nigel Lawson, John Major and Gordon Brown. Not only fully installed in Whitehall's south London tribal heartland, O'Donnell was born deep within it, going to school first in Balham, then in Vauxhall, before departing successively to the universities of Warwick and Oxford.

At the Treasury after a short stint teaching economics, he impressed superiors with what one termed an ability to "handle both the substance and the people very well; it's quite a combination". He was rewarded with an overseas embassy posting - a traditional rite of passage for the high-flyer - in Washington. O'Donnell prospered, returning to become first Lawson's and then Major's press secretary. On the latter's behalf he worked overtime preparing the ground for the pound to join the ERM. Weeks later he was with Major the very evening the new team moved to No 10.

The early Major years were comparatively tranquil. But after Black Wednesday all the horsemen any apocalypse ever warranted seemed to arrive at Major's - and O'Donnell's - lobby door. He was described as "too straight a man to tell a lie". Tories lambasted the remarks he made on Major's behalf as "barmy". He soon, colleagues say, started to look for a way out. He found it with "a fun job" back at the Treasury in 1996, landing himself the most perfect plum of all, the department's senior Washington posting, where he could recuperate in splendour.

But it was not to be. After Labour's victory, Brown, thoroughly impressed by O'Donnell's prowess - it was even rumoured he wanted O'Donnell to take the Treasury's top job - made clear his strong preference for his man to come home and replace the retiring Alan Budd. After some persuasion, O'Donnell returned.

His new job, full-time since September this year, covers forecasting, analysis, debt management and, most of all, EMU. It is, though, his role at the Bank of England that carries most interest: one increasingly common accusation is that O'Donnell's presence on the Monetary Policy Committee (MPC) - non-voting, but otherwise a full participant - subverts the bank's independence.

As one former Treasury panel member put it, the actual extent of Bank independence is almost completely obscured from view: much of the MPC is drawn from the higher reaches of the nation's economic profession, which in itself resembles an extended family of around three dozen people at most. "All these people know each other very well," the former "wise man" says - and they will continue to do so. O'Donnell, either alone or backed by Treasury experts, is a key input of information, analysis, the very lifeblood of the interest rate distillation process. He says he finds it "fascinating"; he participates as much as anyone in the committee's deliberations. His vanguard role in guiding public spending is uncontested. He briefs the MPC on it. They, and he, then discuss the interest rate that goes with it. The Bank claims the MPC is "very robust" in its independence. On O'Donnell's precise contribution, the minutes are silent.

Certainly he has views on how independent central banks should behave - especially regarding their accountability. The Bank's openness, further upgraded by the earlier publication of minutes, is, he says, "quite a strong lesson" to the still very secretive European Central Bank.

What is the best job he's ever had? The current one, naturally. Others are gloomier about his chances of achieving much in the job; it has been downgraded to administration rather than policy-making, they say. O'Donnell's empire, such as it is, does include EMU. This may be his best chance to make his mark in the current parliament. Yet he, as much as anyone else in Whitehall or Westminster, will recognise the fiendish chemistry surrounding the issue. Will EMU reform be his legacy? Maybe, but first the UK will have to join the currency.

Meanwhile, O'Donnell's keenest reserves of strength are his wondrous interpersonal gifts, his ability "to handle people, to gain trust, to read what it is that is important at any one time". This has allowed him, insiders say, to become "a very firm bridge" between the rest of the civil service - a little awkward, and a little cowed by recent Whitehall earthquakes - and the political needs of the new brooms, still brushing briskly in parts of SW1. "He doesn't fall into traps. He doesn't say the wrong thing at the wrong time. He understands very well the roles and functions of a civil servant, where the dangers are."

It has served him well. Archer confirms this: one story has the embattled Major accusing O'Donnell, Archer and Alex Allan of "ganging up against me" by uniting to deliver some bad news. Quickly O'Donnell interjected: "No, we're ganging up for you." The moment, and the day, were saved - again.

With a fair wind, barring surprises, O'Donnell may still claim the Treasury's top post; some say the cabinet secretary's pedestal is also well within his grasp.

Time is on his side. Even if Brown breaks Lloyd George's modern-era record of seven years as chancellor - set in infinitely less arduous times over 50 years ago - working practices will inevitably settle into more familiar routines. The mandarins will rise again, at their head John Major's favourite civil servant, possibly until over a decade into the next century. That mix of touch and endurance has always been the art of administrators. Times have changed: he has moved on. The Tories are not OK, but he, and much of Whitehall, is. O'Donnell's long, careful - and quite brilliant - defensive strategy simply shows that for Britain's civil service the end of history may not have come quite as quickly as some may have rushed to claim.

This article first appeared in the 27 November 1998 issue of the New Statesman, How the left hijacked the family

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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.