Andy Burnham must sort out the centre of government on day one

Andy Burnham, the overwhelming favourite to be the UK’s next prime minister, is reported to be planning changes to the centre of government. He is right to do so. Our work shows that the Cabinet Office is bloated and unfocused, and has lost credibility inside Whitehall. No.10 is too weak, which perversely leads successive prime ministers to draw more functions into the centre rather than devolving and decentralising.

Burnham’s team are also mulling whether to break up the Treasury by creating a new more powerful economics ministry alongside a finance department. Again, he is right to identify problems with the role the Treasury can play, no doubt informed in part by his spell as a Treasury minister in the late 2000s. And solving these will be critical if he is to deliver a successful domestic policy agenda. But breaking up the Treasury, without broader reform, would be a distraction that would not solve the underlying problems.

Change is vital, and Burnham must re-balance the centre of government by strengthening No10, not weakening the Treasury.  But it is essential that he works out what he wants to do right now, then announces and implements reforms at the very start of his administration. The IfG’s Commission on the Centre of Government showed what he needs to do – and if he stalls, then we know from experience that nothing will happen.

Creating a more effective No10 must be one of Burnham’s top internal priorities

Burnham is currently on course to inherit a centralising and controlling, yet ineffective, set of institutions in No.10 and the Cabinet Office. He  and his new team will need urgently to bolster the feeble Cabinet Office and structurally weak No.10 whose current inability to set strategy has created the vacuum the Treasury then fills.

No10 is both underpowered and compulsively involved in detail and daily crisis management. The Cabinet Office has accumulated functions and taskforces hand over fist, and – despite the quality of many of the people who work there – is failing to support the prime minister. There is no space and little incentive in either institution for long-term, strategic thinking of the kind that is needed.  

What Burnham needs is a new Department for the Prime Minister and Cabinet that can properly serve him as prime minister, helping him set and hold the line on strategic direction. A stronger operation around the prime minister would then work from a more powerful position with the Treasury, running a genuinely shared strategy, budget and performance management process, and so collectively setting government priorities.

It is the Treasury’s job to be unpopular

The Treasury is an easy target for criticism among other departments and those outside government. While it too needs reform, some of the critique is unfair: unpopularity is a design feature. As a finance ministry, Treasury is responsible for saying ‘no’ to ministers and others that want to spend more in their area. This is an essential function. Fiscal constraints are real, and trade-offs between different areas of spending and tax are necessary.

Andy Haldane, who is reportedly advising Burnham, has argued the Treasury focuses on fiscal discipline over growth and can be blamed for devolution not having gone further. ¹⁰ https://www.ft.com/content/a296a7e9-ecb4-4cc5-8141-f980336b4861?syn-25a6b1a6=1  His arguments have some merit. The Treasury is concerned about sound public finances, and its desire for control means it has had a centralising instinct. The culture of the department is not conducive to decentralisation. But maintaining low borrowing rates is itself a route to higher growth, and in the last few years the Treasury has both increased capital spending and prioritised planning reform. In recent years, the Treasury has also been one of the main advocates for mayoral devolution within Whitehall.

It is the strength of the Treasury relative to the rest of government – and in particular No.10 – that has over the past few years been a major problem. If a prime minister has not set out and transmitted a clear strategy, the Treasury ends up setting strategy by default through fiscal decisions and the allocation of funding at spending reviews.

A classic example was Boris Johnson’s plans for ‘levelling up’ (something that might resonate with Burnham). The cause was doomed because funding was never available: the vital 2022 white paper came after a 2021 spending review which had already allocated the available resources.

Breaking up the Treasury would be a costly distraction

Treasury-scepticism appears to be leading Burnham towards considering splitting the department. He is not the first. Among others, Kemi Badenoch ¹¹ https://spectator.com/article/why-does-kemi-badenoch-want-to-break-up-the-treasury/ , John McDonnell ¹² https://www.theguardian.com/politics/2019/jul/07/labour-would-break-up-treasury-and-create-northern-no-11-says-john-mcdonnell , Francis Maude and Tony Blair have all proposed or considered a similar split. In 1964, Harold Wilson did create a Department for Economic Affairs, but it was short-lived and the Treasury rapidly saw off the interloper and took back control.

Breaking it up is a natural response to the (correct) perception that the Treasury is too powerful: find a way to weaken and disperse that power. Proposals differ, but usually involve splitting off some of the Treasury’s economic growth functions into a new department – either a beefed up business department or the Cabinet Office. Proponents of such changes argue this would increase the government’s focus on growth and, by taking power away from the finance ministry, weaken the dominance of fiscal concerns that they perceive to hold back good policy.

However badly needed, changes to the machinery of government are always complex, time consuming, and expensive: this reform would be no different. It takes months at least (and often longer) for a new reconfigured department to find its feet. With at most three years left of this government, and a crucial budget in the autumn and spending review coming up in 2027, breaking up one of the oldest departments in Whitehall would come at a major cost. The Institute has previously found the cost of machinery of government changes to be anywhere from £15 million (DECC) to £175 million (DWP), and that is before the long-term costs of productivity loss and morale are factored in. The FCDO, created by merger in 2020, is still far from bouncing back. It would also dominate ministerial and official attention, detracting from other priorities.

Machinery of government changes can still be worthwhile, but only if they fix underlying problems and improve policy making are they worth the high cost. The Institute – and a number of others, as consensus grows – has done the work to show that reforming the Cabinet Office and No.10 is worth the effort. Splitting the Treasury, however, is unlikely to fix much. The underlying dynamics – the need for a finance ministry to say ‘no’ and to allocate spending to meet varying priorities – would be unchanged. If anything, a finance ministry without a growth objective might be more prone to short-termism and a focus on book balancing.

More than that, the Treasury is a part of the centre of government that is effective – a combination of strong departmental culture, clear processes, and a reputation for being ‘high performing’ in Whitehall (as well as controlling the purse strings and a series of tight spending controls) mean the department tends to operate as a coherent whole. Departments fall into line, seeking approvals from the Treasury and generally abiding by HMT’s decisions. Weakening the stronger half of a partnership is short-sighted. A new prime minister should use the narrow window they have at the start of their premiership to strengthen the weaker partner and to set up a centre of government that works. The success of Andy Burnham’s government will depend on it.