Guest blog: What’s wrong with the Treasury?

The Treasury is portrayed as the villain behind all the constraints on departments. I also agree with Emran about how important it remains to protect the Treasury’s position against overwhelming odds (there are more spending department votes across the Cabinet table than Treasury ones), and the importance of continuity. However, that doesn’t mean there are not a number of things that could be improved. As an academic Treasury-watcher for more than 30 years, my own observations about the institution would be twofold: 1.The official Treasury is too much at the whim of the personality and power of the Chancellor and has lost a proper institutional memory and historical sense of its mission. The Treasury is the most political of all departments. It is the most closely entwined in the fabric of our over-centralised central state. Rather like a very old tree with ivy and mistletoe growing in and around, it is impossible to disentangle the emergence and evolution of the Treasury from the development of the modern British State from the 17th century onwards. It is inextricably linked with the growth of Parliament, the emergence of a First Lord of the Treasury, and with the wielding of the Royal Prerogative. It owes its powers to two Orders in Council in 1688 and 1689. Ironically for a department that is probably the oldest continuing organisation in the western world (with DNA going back to Saxon administrative guile in the 9th century), it has remarkably little sense of its own history; officials often reinvent solutions as if this year, this hour were when time started. Its institutional memory has got weaker, especially since the Fundamental Expenditure Review in 1994, when layers of old stagers and middle managers were removed and thus none of these were in post to consult internally when the financial crisis broke. Nick Macpherson has given a refreshingly strong lead on reengaging with the Treasury’s own history and experiences. But with current turnover of staff, and pressure to compete at the senior level with higher pay outside Whitehall, can continuity and an embedded historical culture be maintained? Of equal significance, the Treasury is too malleable and prepared to adapt to the political lead of a strong Chancellor or Prime Minister. Since 1983 the official Treasury has lost much of its power and inclination to ‘talk truth to power’. This was true in not resisting Nigel Lawson’s boom in the late 1980s, not resisting ERM entry in 1990, and in bowing to the sheer political weight of Gordon Brown in the 1997-2007 period. The constitutional state role to inform and warn was also lacking in the 2004 period when there was a loss of control in fiscal policy and absence of proper stress testing of the financial system and the tripartite mechanism. There was no proper assessment of the productive value gained from an enormous expansion of spending on the NHS; much was nodded through. The official Treasury needs a culture that protects the longer-term essence of its ‘verities’: the ‘day job’ of maintaining revenue and containing spending. The apparent ‘great stability’ of the 1990s to 2007 should not – for a department which survived the South Sea bubble and the 1976 IMF loan – have produced complacency. This speaks as much to the over-malleable nature of our unwritten constitutional structure as to the culpability of the official Treasury. But culpable it was. 2.The official Treasury is too small to perform what is in effect a five-headed department’s roles and responsibilities. The Treasury is not one department but five: central department (alongside No 10 and the Cabinet Office), finance ministry, economics department, foreign economic policy agent (leading on our representation in the IMF and G7 and G20), and a policy actor. Notwithstanding passing operational independence over monetary policy,and much else besides, to the Bank of England, these roles are enormous for a department with less than 100 senior officials. In order to continue such a spread of functions, the Treasury needs to monitor how the Bank of England manages its extensive powers; it needs to look at broader economic policy, and the efficiency of the public sector as a whole. It needs more senior staff; a beefed up remit for the Second Permanent Secretary, and from the political side, also for the Chief Secretary; stronger intellectual capacity to push for improved productivity (a microeconomic brief); and a stronger regulatory capacity to manage the Bank. Alternative to this augmented Treasury would be a smaller, leaner and more constrained Treasury which is just a ministry of finance. One of the lessons from the New Labour era was the Treasury’s lack of implementation capacity and follow-through. It may be time to consider the creation both of a Prime Minister’s department (with a strong coordinating brief) and a proper economics department (as most of our competitors have). Raising taxes, managing spending and ensuring the effective productivity of that spend are more important now than ever. This is the central and historic mission of the Treasury.