In light of Lord Kerslake’s independent review, ‘Rethinking the Treasury’, and with the looming Spring Budget one day away, Professor Dave Richards considers where next for the Treasury.
- The review advocates a return to the Treasury’s core functions of controlling and co-ordinating public finance and overseeing the macro-economy
- Now is the time to break from the rigid, hierarchical and functional approach associated with the Whitehall model
- Brexit requires a joined-up strategy across Whitehall, based on flexibility, innovation and project management that cuts across departmental turf boundaries
- The Treasury has resisted fiscal devolution, retaining central control to the detriment of a more pluralised, responsive and devolved model of governance
- Brexit could act as a catalyst for a change towards a Treasury that is more open, transparent and public facing
Budget day is one of those unique moments in British politics which invites parallels with Walter Bagehot’s metaphor of the British constitution as a mix of the ‘dignified’ and the ‘efficient’. The dignified is symbolically captured in the Chancellor routinely standing outside No.11 brandishing the red box and maybe less so sipping malt whisky during the budget speech. The efficient is derived from the financial statement itself setting out the government’s spending and taxation plans, though George Osborne’s delivery of what was regarded as at least one omnishambles budget may raise eyebrows over any allusion to efficient.
The budget also elevates, in the collective consciousness of the public, the role that the Treasury plays in their everyday lives. The backdrop to this particular budget will of course be coloured by the looming shadow of Brexit.
The Kerslake review
Yet, for the more avid of Whitehall watchers there is also an awareness that these are not the happiest of times for the oldest of all the Great Offices of State. In the last decade, its reputation both across Whitehall and beyond has been somewhat diminished. This at least is a view to emerge in a new, critical report Rethinking the Treasury by Lord Kerslake, a former Head of the Civil Service, launched on 13th February 2017 at the University of Manchester. Those contributing evidence to his report [which revealingly lacked official Treasury endorsement] were not shy in coming forward over what they regard as the sub-optimal performance of the Treasury:
‘…the failure to mount an effective assessment of the impact of austerity; the failure to be taken seriously in the Brexit debate; “omnishambles” budgets; poor banking supervision as RBS fails the most recent Bank of England stress test; and systemically wasteful government programmes that suggest poor financial management.’
Words of course are easy, it is actions that count. In terms of the latter, the Treasury’s fall from grace in the Whitehall pecking order may be evidenced by the way in which other departments are leading over Britain’s exit from the E.U. and the announcement in January that the Government’s new industrial strategy is being rolled out by the Department for Business, Energy and Industrial Strategy. It is hard to imagine such eventualities coming to pass either on Gordon Brown’s watch as Chancellor, when economic and social policy was ostensibly made and driven by the Treasury, or the heady days of George Osborne’s Northern Powerhouse and with it devolution in England, in which those jostling for combined authority status in a scramble for cash saw a bidding process effectively rolled out at the beck and call of the Treasury.
For Kerslake, this is undoubtedly no bad thing, for one of the core criticisms in his Report is the degree to which in recent decades the Treasury has become ‘too expansionist’ by increasingly ‘arbitrating and even initiating domestic policy’. The Report advocates a return to its core functions of controlling and co-ordinating public finance and overseeing the macro-economy. The recent events outlined above suggest this may already have come to pass. Relatedly, the post-2008 cuts in government has led to the downsizing of the size and capacity of the Treasury as it sought to ‘set an example to other departments’. Yet the effect has meant there are now ‘too few people in some key areas, and very young and often inexperienced staff drawn from a high calibre but relatively narrow talent pool being given very major responsibilities for providing advice to ministers or taking decisions themselves’.
The issue is compounded by what the Report identifies as a particular culture in the Treasury, an unholy trinity of – ‘groupthink’ (following the departmental line), ‘arrogance and inwardness’ and a ‘lack of openness’. These are pointed criticisms and Kerslake, as one of the most senior of former mandarins should be applauded for the candour found throughout this Report. [It is hard to imagine the tone being as strident if some of his predecessors had been at the helm]. In a search for balance, the Report goes on to stress there are ‘great natural strengths’ to the department, particularly in terms of the calibre of those it recruits, though holding on to such talents has been an increasing challenge in a competitive market place.
Yet, the net impression the Report may leave some readers is a sense of unease at the current state of what has traditionally always been regarded as one of the most august of all Whitehall departments. If ever there was a moment in British politics in which one would wish for a department to be punching above its weight, it is now. And yet, the evidence here suggests it is a ministry down on its heels, lacking in confidence and operating somewhat as a ‘hollowed-out, echo-chamber’.
Such a perspective may of course be somewhat removed from reality. The Treasury still remains one of the most powerful of all Whitehall departments given the resources and tools it commands, particularly in relation to the Autumn Statement’s annual spending round and of course the budget. And it is to this end that the Report comes down somewhat on the side of caution. Given the potential challenges that lie in wait for Whitehall in the light of Brexit [and the architectural re-designs that have already taken place as a result], it rejects breaking up the Treasury by creating separate economic and finance portfolios [the spirit of George Brown still lingers long in Whitehall’s institutional memory].
Reforms beyond the review
Less convincing is its approach to one of the besetting pathologies of Whitehall; that of siloisation, which the annual spending review so clearly reinforces. As argued elsewhere, surely now is the time to break from the rigid, hierarchical and functional approach associated with the Whitehall model? In the least, Brexit requires a joined-up strategy across Whitehall, based on flexibility, innovation and project management that cuts across departmental turf boundaries. Yet, here the Report offers no real alternative to the Treasury’s traditional approach to controlling public spending through the almost exclusive use of a spending-review approach almost exclusively organised round departmental budget-lines, so re-enforcing departmentalism. What instead is recommended is the creation of a ‘Strategy and Delivery Unit’ in the Cabinet Office to oversee: ‘strategic planning, coordination of policy across departments and monitoring of departmental performance’. Those with not particularly long memories will know we have been here before under New Labour and the unit building that took place then at the heart of British government. The net effect was not to overcome the externalities associated with siloisation, but instead to reinforce the centralising tendencies that are so much a hallmark of the U.K.’s approach to governance.
This then neatly leads us on to one of the final but most crucial recommendations made in the Report – the need for real fiscal devolution. It pointedly observes that the Treasury’s desire to control public expenditure aggregates has meant that, beyond Scotland, there has been very limited ‘real devolution’. The net result is that ‘the UK system of spending control remains one of the most highly centralised in developed countries’.
The last two decades has witnessed a range of governments rhetorically appealing to the need for greater devolution, but then baulking at the potential power give-away this might involve. The Treasury has been as guilty as any in all of this. This then has led to an approach that sustains a key element of the British political tradition, that of central control to the detriment of a more pluralised, responsive and devolved model of governance. On this theme, the Report’s clarion call is for a Treasury that is more open, transparent and public facing. It might be that Brexit acts as a catalyst for such a change. The fear though is that a set of re-centring tendencies take hold, as the Department continues to seek to exert control over the fiefdoms that it surveys.