Key financial lessons 'not learned'
The Treasury may not be prepared to deal with another major financial crisis, MPs have warned following an inquiry into the Government's capacity to tackle future challenges.
The MPs said the Government and the City needed to do more to prepare for a "worst case scenario" in the financial system.
A cross-party report found there was a "surprising and urgent gap" in the Treasury and the MPs said they had "not seen sufficient evidence" to show that officials had learnt a key lesson from the 2007-8 crash about the need to be prepared.
The Public Administration Select Committee said: "The Treasury acknowledged to us that the UK remains exposed to the risk of another adverse global economic event, such as the impact of a crisis in the eurozone, and that this could be on the same scale as the 2007-8 financial crash.
"London is a financial centre of the world economy, whose major institutions remain vulnerable and exposed.
"We welcome that the Treasury does contingency planning, and the Bank of England's role and structures have been strengthened.
"Yet financial and economic risks are not included in the Government's National Risk Register, so the Government does not consider these systemic risks alongside other, non-financial risks such as pandemic flu and microbial resistance, and different responsibilities and functions are divided between the Bank of England, Financial Conduct Authority (FCA) and the Treasury.
"Market-wide exercises have been conducted to test resilience, but not on a comprehensive basis to address the risk of systemic financial collapse triggered by an unexpected event."
The committee said the Government should carry out "war games" with the Bank and FCA to test responses and find out how resilient the system is.
The MPs also recommended bolstering the Government's "horizon scanning" unit, which is tasked with identifying future risks.
They said the five-strong team is "too small to gather, let alone synthesise, all the relevant understanding generated around government" and the equivalent unit in Canada had 25 members.
The report said the Ebola crisis in West Africa was an example of where there had been a lack of coordination between different branches of government.
The committee's Tory chairman Bernard Jenkin said: " The Treasury has done a lot, but there is more to be done to be ready for another financial crisis.
"We still have institutions which are 'too big to fail' but with so much national borrowing capacity used up, they may prove 'too big to save' if it happens again.
"We did not find evidence that Government and the City are actively practising and exercising for this worst case scenario. We found this lacking in other areas too.
"The failure to act quickly on the developing Ebola epidemic in West Africa cost thousands of lives and billions in aid. This failure was by no means unique to the UK but the Chief Medical Officer and the Joint Intelligence Committee combined their understanding too late for timely action.
"We have found a lot of assessment and planning for the future, which is key to maximising opportunity as well as managing risks, but we need better coordinated, systematic and imaginative analysis of trends, risks and possibilities across the whole of government.
"This would better underpin far-reaching decisions on long term issues such as low productivity growth, infrastructure, technology, financial regulation, defence and security.
"Whitehall has developed a lot of useful capacity for assessing risks, building resilience and looking for long term opportunities, but so much more could be achieved by understanding how to bring this together. This will mean we can deal with unforeseen adverse events more effectively, but also increase the UK's capability to exploit opportunities and innovation, which is necessary for us to remain competitive and viable."
A Treasury spokeswoman said: "It is unfortunate that the Public Administration Select Committee's report takes no account of the relevant facts.
"By focusing on Whitehall procedures they have entirely missed the point: the lessons of the financial crisis have been learned and acted upon by putting in place a reformed regulatory system, ring-fencing the banks, ending the 'too big to fail' problem, and dealing with the risks posed to the economy by an unsustainable deficit.
"Taking the action needed to protect hard-working people from the effects of future financial shocks is at the heart of our long term economic plan."