A dominant Treasury is causing problems for government

Published today, Treasury ‘orthodoxy’: What is it? And is it a problem for government? examines accusations that rigid beliefs – an ‘orthodoxy’ – shape the Treasury’s economic thinking, with former prime minister Liz Truss and her allies attacking the department for being ideologically anti-growth and anti-democratic in the way it worked with ministers.

While the new IfG report dismisses these anti-growth allegations – Treasury orthodoxy emphasises the importance of spending control and sound money, as would be expected at a finance ministry – it identifies flaws with the department that cause problems for government.

An imbalance of power at the centre, due to No.10’s comparative lack of firepower and ability to drive strategy, allows a dominant Treasury to fill the vacuum and take ‘ownership’ of whole-government strategy. This leads to bad outcomes in policy and spending, with Treasury spending staff too inexperienced and unable to draw on adequate expertise to make the spending decisions asked of them. The Treasury is also too quick to micro-manage when it could better delegate more power to departments to spend their budgets, and it remains too secretive, especially in its tight grip over tax policy. More transparency would help, rather than hinder, its work.

Fiscal policymaking in government is also causing problems, with the damaging short-termism of the Treasury budgeting process risking ‘static thinking’: a bias against transformative policy proposals.

The report provides an overview of how problems with process and power imbalances within government could be addressed, with more detail to come in future IfG publications:

• Short-termism should be addressed by reform to the fiscal framework, a renewed spending review process and strong political direction from the chancellor and prime minister
• No. 10 and the Cabinet Office should be strengthened to fill the strategic vacuum in central government that currently necessitates the dominance of Treasury budgeting processes
• The Treasury (and indeed wider civil service) should open up to more specialist expertise to improve the quality of spending decisions

Olly Bartrum, IfG senior economist and report author said:

“That there are critics of the Treasury should be somewhat comforting: a finance director able to please everyone is surely a bad omen. But its processes clearly lead to some damaging outcomes. A chancellor wanting to get the best out of the department can make a good start by reforming the fiscal framework and spending review process."

Giles Wilkes, IfG senior fellow and report author said:

"Much of the resentment aimed at the Treasury is blaming the messenger. Public policymaking is about tough choices, and the Treasury is merely the conduit of difficult news. But no one in government can deny the extent of its power. Its views often outweigh all others, which risks seriously distorting our politics. It falls to politicians to recognise and address this.”