When Sir Nicholas Macpherson became permanent secretary to the Treasury in 2005, Tony Blair had just won a third term as prime minister, Gordon Brown was chancellor, the British economy was growing strongly and the banking sector was expanding rapidly. Eleven years later, it all looks rather different yet the Treasury is as dominant as ever within Whitehall.
Sir Nicholas is the longest-serving permanent secretary to the Treasury for 60 years: since Edward Bridges in the immediate postwar decade and before that the two decades of Warren Fisher in the inter-war period. As such, he has become one of the most influential civil servants in the running of Whitehall.
It has, of course, been a tough period with the financial crisis, a deep recession, big spending cuts, far-reaching constitutional changes, a coalition government and now its successor. The role of the permanent secretary is to provide the staff, resources and advice to respond to these pressures and, above all, to the views and preferences of the chancellor.
Treasury permanent secretary Nicholas Macpherson to leave Whitehall in March
MPs: Nicholas Macpherson advice on Scottish currency union 'should not have been published
Civil servants cannot be blamed for the policy failures of ministers, though their reputation inevitably gets tarnished, as the Treasury’s was following 1992’s Black Wednesday and again after the financial crisis that began in 2007. The Treasury was associated with the optimistic view of the prospects for financial services, and hence for overall tax receipts during the pre-crisis years. The Treasury has been accused of being insufficiently prepared for the credit crisis as it developed in 2007, not least by Alistair Darling, who took over as chancellor that summer.
The Treasury’s review of its management response to the crisis, led by Sharon White, argued that the Treasury and the other supervisory bodies had taken their eyes off potential banking problems. After the hesitant start over the run on Northern Rock, the Treasury quickly learnt the lessons. Overall, the White review concluded that while the Treasury had responded in “a nimble and dynamic fashion”, it was “stretched and could have been better prepared”.
Sir Nicholas can be credited for overseeing the rebuilding of the Treasury over this period. Managing the transition from Labour to Conservative-dominated coalition was his second-biggest challenge. In the run-up to the election in May 2010, few inside or outside Whitehall would have bet on Sir Nicholas still being the perm sec at the end of the year, let alone six years later. Such were the Conservative suspicions of the Treasury after the Brown and Darling years. But Sir Nicholas managed the pre-election contacts adeptly and showed Osborne that the Treasury could respond quickly to his new priorities, both in setting up the Office for Budget Responsibility and in preparing the immediate in-year cuts and the broad Spending Review of the summer and autumn of 2010.
At the end of his long period in charge, the Treasury is clearly the most powerful department in Whitehall. That, to a large extent, reflects the influence of the chancellor. There are many parallels between Osborne’s position now and Brown’s in the mid-2000s, though relations with 10 Downing Street are currently much more harmonious. Osborne has ministerial allies in many other departments and the Treasury’s writ now extends over many areas of policy, such as the renewed emphasis on infrastructure, the devolution deals negotiated with local authorities and, most immediately, its leading role in the current European negotiations. Treasury officials were cool about some of the civil service reform initiatives in the last parliament before eventually taking the lead on much needed improvements in financial management.
Sir Nicholas can fairly point to a self-confident institution that has a clear identity and purpose, topping the regular civil service engagement surveys of staff - however much other departments criticize its heavy-handedness, alleged arrogance, interference in their work and lack of transparency. Sir Nicholas has seemed to delight in the traditional mysteries of the Treasury, not least by encouraging historians to look at, and publicly discuss, past crises. While his role has been mainly private, he did attract controversy before the Scottish referendum in 2014 by publishing his own advice warning about the SNP’s plans for a currency union between Scotland and England.
There are many challenges for Sir Nicholas’s successor, with the economic outlook uncertain and tight spending plans to implement, as well as the big hurdle of the European referendum. Beyond that, but before 2020, there will be a new prime minister and a new chancellor whether or not Osborne succeeds David Cameron. Past examples of chancellors becoming PM are not happy for the Treasury as the new occupant of Number 10 is usually reluctant to allow his successor as chancellor much leeway. That was as true of the Macmillian/Thorneycroft relationship nearly 60 years ago as of the Brown/Darling tensions of 2007-10. That will be a tricky transition for the new treasury perm sec to manage.