The No.10–Treasury relationship is entering a difficult period

There have been many incarnations of the relationship between the Treasury and No.10 over past decades. What should be a key partnership between two of the government’s biggest players has at times turned toxically destabilising.

The personal relationship between the prime minister and the chancellor matters

Margaret Thatcher would from time to time assert her rights as first lord of the Treasury over her appointed chancellor. Those spasmodic interventions, often over minor spending commitments that appealed to her, turned sour – first over her support for the poll tax, which the Treasury always opposed but let her have her way (though refused to underwrite); then over Nigel Lawson’s policy of shadowing the deutschmark and Thatcher's increasingly hostile line on Europe, which culminated in the chancellor’s resignation.

John Major, as a former chancellor, had a personally good but politically troubled relationship with his second chancellor Ken Clarke, over the latter’s refusal to precisely toe the line over the government’s lukewarm commitment to join the euro when the “time was right”.

Tony Blair and Gordon Brown were in a continual state of tension – sometimes creative, sometimes destructive. Gordon Brown wanted to keep acting as chancellor when he became prime minister, and was frustrated whenever Alistair Darling decided he would actually like to do the job.

In contrast, the six years of David Cameron and George Osborne were an untroubled bromance – with indulgence on each side of the odd policy folly, which might have been avoided in more conventional times. In some ways Osborne could be regarded as the trailblazer for Steve Barclay’s new role, acting as chief executive to David Cameron’s chair. In contrast, Theresa May seemed shackled to Philip Hammond with whom she may have had views in common, but little personal chemistry.

Team Johnson thought it had subordinated the Treasury, but it has not

The Johnson team wanted to ensure that there was no opposition to its agenda from the Treasury. The proposal to unify the team of special advisers serving No.10 and the Treasury provoked Johnson’s first chancellor, Sajid Javid, into resignation, and saw the rapid and unexpected elevation of the then number two Treasury minister, the near unknown Rishi Sunak. Roll forward two years, and Sunak has transformed from unknown into hero of the pandemic, who did “whatever it took” to see people through hard times. Some of that shine is now coming off – with concern about fraud write-offs and a rather convoluted response to the cost of living crisis. 

But rather than meekly underwrite team Johnson’s plans, Sunak is also reverting to Treasury type. He has insisted that the prime minister has to raise taxes to bail out the NHS and fund his plan for social care. He insisted that the pandemic-era Universal Credit increase was reversed. He undid the triple lock on state pensions, breaking another manifesto pledge. He battled to the last over the net zero strategy (and barely mentioned it in his budget speech, even though that came days before the UK hosted the COP26 international climate summit). He fought a similar fight to reduce Michael Gove’s levelling up ambitions and most recently has been accused of delaying to deal with the NHS backlog.

The natural institutional rivalry is now exacerbated by the personal

There is a natural institutional divide between the Treasury and No.10. The Treasury has a more narrow focus – but also feels surrounded by a cabinet that usually would prefer bigger departmental budgets. It is the role of the Treasury to cast a sceptical eye over proposals to spend public money – though sometimes that scepticism impedes long-term thinking and cheese-paring undermines real value for money. Prime ministers meanwhile hanker after eye-catching announcements, backed up by cash, but may be more reluctant about taking the tough decisions about how to pay for them. The current prime minister is clearly at the more extravagant end of this spectrum. 

But that natural tension now has a personal overlay. The chancellor is reported to be on “manoeuvres” as the prime minister is weakened. He tops the chasing pack of potential rivals. That means every policy decision is now refracted through the prism of whether the chancellor is trying to send messages to the wider parliamentary party, particularly those who may be concerned at the drift towards a bigger state that is a feature of the Johnson project.

The Blair–Brown experience shows this state of affairs can be sustained for a prolonged period. But it means that every policy has the potential to turn into a war of attrition between the two sides. It is an interesting early challenge for former Treasury chief secretary turned No.10 chief of staff, Steve Barclay, to make this relationship work while Johnson hangs on.