Good luck, Bob Kerslake – others have tried to rein in the Treasury and failed

Labour’s new commission – led by the former head of the civil service – can learn a host of lessons from previous bids to wrest power from the chancellor, says our columnist Sue Cameron

By Sue Cameron

05 Jan 2016

"The chancellor is always likely to earn the enmity of other departments,” remarked Nigel Lawson, adding: “They want to spend money and the chancellor has to say no’. If he’s not saying ‘no’ most of the time then he’s not doing his job.”

Lord Lawson was back at the Treasury at the end of last year sitting in the large panelled room that had been his office when he was Margaret Thatcher’s chancellor. He was reflecting on that role to an audience of academics, officials and journalists from the Strand Group, based at Kings College, London. That chancellors tend to rouse enmity there can be no doubt – so much so that periodically those jealous of HM Treasury’s power start massing at the gates intent on cutting it down to size.

They are at it again now. Well, they’re not actually at the gates but they have set up a small commission to work out how to bend HMT to their will should they ever get within storming distance. The commission, announced by Labour shadow chancellor John McDonnell, is being chaired by Sir Bob, now Lord, Kerslake, former head of the civil service. Its stated aim is to see if the Treasury is “fit for purpose” and, more specifically, if it can be made to concentrate less on cuts and more on growth.

Bob Kerslake sheds light on his review of the Treasury for Labour's John McDonnell
Bob Kerslake to carry out Treasury review for Labour
Treasury permanent secretary Nicholas Macpherson to leave Whitehall in March
Catch up with KPMG and CSW's post-Spending Review webinar

Good luck with that one, Lord Kerslake – you’ll need it. Not that there isn’t a case for scrutinising the way HMT works. As Kerslake pointed out in The Times, it’s “almost a uniquely British political phenomenon to have so many of the central functions of government concentrated in one department”. Other countries, including highly successful Germany, have separate economic and finance ministries. It is also true that critics of the way HMT rules the Whitehall roost include not just left-leaning politicians and economists but Treasury insiders. Jill Rutter of the Institute for Government, a former Treasury official herself, questions the way the Treasury refuses to adhere to the disciplines imposed on other departments. “Many Budget measures would be laughed out of court by even the most junior Treasury official if they were put forward by a spending department,” she writes. “There is no case for applying a different standard just because the chancellor is announcing them.”

Yet others have tried to rein in what they see as an overmighty Treasury. Always they have failed. According to Sir Nicholas Macpherson, the outgoing permanent secretary at the Treasury and visiting professor at King’s College, the origins of Treasury control started with our humiliating defeat in the 1667 second Dutch war when 15 of our ships were destroyed in the Medway and the flagship Royal Charles was towed back to Holland as a trophy. It was, says Sir Nicholas, a triumph of Dutch finance and administration. With a population a quarter the size of Great Britain, they had deployed more money to finance the war.

Charles II then insisted that the nation’s finances should be run by “rough and ill-natured men, not to be moved with civilities or importunities in the payment of money”. Soon those appointed were insisting that all warrants be countersigned by the Treasury. Over the centuries its grip tightened. William Gladstone, prime minister and chancellor, fretted about the appointment of an aristocrat as financial secretary, asking: “Can an heir to the Earldom of Derby descend to the saving of candle ends, which is very much the measure of a good secretary to the Treasury?”

By the 1960s opponents recognised that the only way to rein in the Treasury’s entrenched power was to create a counterbalancing department. The Labour government of Harold Wilson duly created the Department of Economic Affairs as a fiefdom for George Brown. Almost immediately it was riven with rivalries. FT journalist Sir Samuel Brittan, who worked there at the time, recalled bumping into the then chancellor, Jim Callaghan, who told him: “Setting up a committee on international liquidity. Don’t tell George.”

The experiment failed as have others and it is hard to see the Kerslake commission coming up with a workable way of weakening the Treasury’s sway. After all, if an incoming chancellor wants to abandon austerity and loosen the purse strings his officials will carry out his policy without any need for institutional change. Besides, can you seriously imagine any new chancellor divvying up his power among cabinet colleagues? Even if the attempt were made, ministers would soon start fighting among themselves as they did at the DEA. 

And power is a matter of perception. Says Sir Nicholas: “Outsiders think the Treasury is too powerful. Insiders fear being overwhelmed.” Overwhelmed? By whom? Why, by the markets and by all those spending ministers coming together and storming the Treasury citadel demanding money. No doubt the Kerslake review will come up with some interesting insights and no doubt HMT would benefit from being challenged more. But if Mr McDonnell wants to be a successful chancellor he should stop asking how to re-arrange the Whitehall architecture and start learning from Lord Lawson how to deploy the power of “no”.

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