Chancellor Rishi Sunak (left) and his predecessor Sajid Javid. Photos: PA
It has been described, variously, as a prime ministerial power grab, the end of the Treasury as we know it, and the most significant constitutional reform since devolution to Scotland and Wales in 1999.
Boris Johnson’s decision to merge the Treasury’s special advisers with those in No.10 to create a joint economic unit is the latest high-profile attempt by a prime minister to bring the Treasury to heel.
The relationship between the Downing Street neighbours has dominated governments for more than half a century – from Harold Wilson’s short-lived Ministry of Economic Affairs to the decade-defining Tony Blair-Gordon Brown feud and the historically close working between David Cameron and George Osborne.
Johnson’s move, backed by his senior adviser Dominic Cummings, is intended to better link the Treasury to No.10’s ambitions for Brexit and the proposed “levelling up” of the economy by investing more outside London.
The change cost Johnson his chancellor when Sajid Javid refused to go along with the plan, but how might it change government?
Nick Pearce, who worked as head of the No.10 policy unit under Gordon Brown, says the relationship is always tense because “the Treasury will always be more fiscally conservative than the rest of Whitehall, and certainly than a prime minister”.
Such an approach “goes deep in the Treasury mindset”, and informs spending decisions across government says Pearce, who is now the director of the Institute for Policy Research and professor of public policy at the University of Bath. “Historically [the Treasury] has tried to limit the spending implications of what prime ministers commit to. It’s just something it’s always done. It’s part of why the institution was set up.”
However, this conservatism has placed the Treasury under pressure from the force that is providing a political stress test of all the UK’s institutions – Brexit.
Brexit supporters have been suspicious of the Treasury ever since the 2016 referendum, Pearce says. Leave campaigners thought HMT was overly pessimistic in its projections on the economic costs of leaving the EU, most famously encapsulated by leading Brexiteer Steve Baker’s comment – when a government minister – that government economic forecasts are “always wrong”.
Add Cummings’s long-standing aim to change how the civil service works, and it is clear that Johnson’s move adds up to a challenge to what Pearce calls “most probably the most powerful institution in the British state of the last century and a half”.
How, then, might these changes affect civil servants?
“It is not obvious to me that if you wanted a counter view from No.10 to the Treasury view on fiscal projections, that they’d have the analytical capabilities to do that” Nick Pearce
Another former Downing Street adviser, Matthew Taylor, who was head of the No.10 policy unit under Blair, says the changes could affect officials by closing down the space to interrogate policy.
Although the relationship between No.10 and the Treasury is “inherently unstable”, the creative tension between them “also means you’re less likely to make bad mistakes,” he says.
The Treasury is part of what Taylor sees as the “triangle” of government on any policy – with the chancellor and his team responsible for interrogating figures, No.10 responsible for the political strategy and management, and the individual department managing the stakeholders.
Although it is difficult to keep this tripartite system in balance, it also provides a structure for examine different policies. This “gives civil servants a little bit of breathing space to push back a bit because different bits of the triangle have got different forms of legitimacy”.
“You can push back from the Treasury because you say the numbers don’t add up, or a service department can say this may work politically and financially, but it’s going be hard to implement.”
Subordinating the Treasury to No.10 would make this much harder for officials, he concludes. “You’d get less scope to be challenging or even sometimes in a benign way – and I emphasise benign – to conspire a little to make sure that politicians are really thinking through what they’re doing. That’s much harder to do if you’ve got an entirely linear, single hierarchy.”
Dan Corry, who also had a spell as head of the No.10 Policy Unit under Brown and before that as chair of the council of economic advisers in the Treasury, raises concerns that the changes will lead to officials pulling their punches on economic advice now that they know that anything in the chancellor’s red box could also make its way onto the prime minister’s desk through the joint team.
Johnson may wish, as has been reported, to make a structural change in order to mimic the close relationship between No.10 and No.11 that David Cameron and George Osborne had from 2010 to 2016. But this has its own problems according to Corry, who who is now the chief executive of New Philanthropy Capital. “Some ideas weren’t tested enough [in that era],” he says.
Pearce too raises concerns that No.10 will have too much to deal with, given that the office around the PM has very little analytical and research capacity for overseeing Budgets.
“The Treasury is the place with Whitehall’s analytical capabilities. It has modelling and forecasting capabilities – on spending in particular, but also on tax receipts. It is not obvious to me that if you wanted a counter view from No.10 to the Treasury view on, say, the fiscal projections, that they’d have the analytical capabilities to do that to any great depth.”
The timing of the reshuffle has meant new chancellor Rishi Sunak has been given only a few weeks to write the Budget, while the Treasury has also been handed the unexpected task of projecting – and then dealing with – the economic fall-out of coronavirus.
All this limits the scope for immediate changes, says Pearce, but the Spending Review later in 2020 will provide an indication of the impact of the new approach.
The review will likely provide the details behind Johnson’s aspirations to boost public services and economic growth across the country as part of the levelling up agenda. How this plays out will indicate who now controls the purse strings, Pearce says.
Typically, policy coordination and preparation for major fiscal events is done though lead officials in private offices and not through political advisers, he recalls, having been involved in the 2000, 2004 and 2007 reviews when Labour was in government.
When they are working together well, No.10 and No.11 agree joint priorities and then “form a united front in the centre to manage the rest of Whitehall”, he says. If this happens this time in the areas where Johnson and Cummings are keen to see change, then it could well be a sign of the tectonic plates shifting under the Treasury.
“If we see some big infrastructure projects that look like they’re the prime minister’s favoured ones, or if we see some changes to the approach to regional regeneration policy, then perhaps you might be seeing some more influence from No.10.”
Spending Reviews always clarify the priorities of a government, as political promises that are cheap to make need to be backed by hard cash. But if this one goes further and cements changes in the working relationship of the government’s two most important departments, Whitehall could be changed forever.
And given how many have tried before him, this – perhaps as much as Brexit – would be Johnson’s legacy.