The countdown to Andy Burnham’s coronation as prime minister was accompanied by press reports that he was mulling a radical splitting of the Treasury. He wouldn’t have been the first to consider such a move but in the event he (wisely, in the Institute for Government’s view) instead reformed the other parts of the centre of government. Burnham instead created an Office of Prime Minister and Cabinet (OPMC), bringing together the policy side of the Cabinet Office and No.10 and establishing the new No.10 North.
Burnham has since hinted that his new structure could imply a bigger transfer of responsibility away from the Treasury. Speaking to The Times, he said No.10 North would be “taking over responsibility for economic growth” from the Treasury, a statement which appeared to go further than the official briefing that some local growth responsibilities would transfer to the new Manchester office.
Would this more radical path be the right one? Bolstering No.10’s economic policy capability and influence is certainly welcome, but attempts to cut the Treasury out, or otherwise neuter it, would be counterproductive.
The Treasury gets a lot of criticism, including the PM’s complaint – expressed in the Times interview – that the department’s focus on balancing the books “sometimes clouds the growth mission”. There is some truth in Burnham’s analysis. The Treasury does prioritise fiscal discipline, and this can lead it to focus more on the short-term – but that is not say growth is ignored. Rachel Reeves’ Treasury delivered a big increase in capital spending and sought to prioritise planning reform – two changes that should drive long-term growth.
The Treasury’s unpopularity is inherent to its role. It is the part of the system that has to say ‘no’ to some of the spending ideas that departments (and prime ministers) propose in pursuit of different objectives, including growth. Each on their own merit might seem to the advocating secretary of state a no brainer, but if the Treasury said yes to all of them spending would far exceed what tax or borrowing is sustainable, which would itself undermine growth far more than these schemes would contribute.
None of this is to say that the existing system is perfect. When strategy and policy leadership from the rest of the centre of government has been lacking, the Treasury fills the void and its natural focus on keeping spending in check can lead to underwhelming results. That is why powering up the centre rather than diminishing the Treasury is the right way forward. Levelling Up is a classic example of getting this wrong: Michael Gove’s white paper in 2022 came after the 2021 multi-year Spending Review had set budgets, and, as chancellor, Rishi Sunak refused to reopen the SR to allocate money to what was claimed to be the Johnson government’s flagship priority.
A more active No.10 on economic policy is something Burnham is right to prioritise. The agenda will benefit from a better-supported prime minister who can challenge Treasury orthodoxy where appropriate and lead an overall strategy that combines growth and other objectives. To do this well, Burnham should prioritise expertise in his London and Manchester ranks and ensure he has the economic capacity and heft to work effectively with John Healey.
But he should also aim to harness the Treasury, with its existing functions, to the government’s overall strategic goals, rather than try to strip it of growth responsibilities. That could make the problems the PM worries about even worse. With bond markets sensitive, fiscal discipline is likely to be a key concern, and without a growth objective, the Treasury could morph into something more like its critics’ caricature as a group of short-termist bean counters. Moreover, a prolonged battle at the centre over who does what will eat up time and effort and get in the way of delivering the results Burnham needs.
Burnham’s changes to the centre of his government are at an early stage, but we remain cautiously optimistic. And Healey’s prominent role on the National Economic Council and “growth situation room” meetings suggest the Treasury is not being cut out. By building a strong economic partnership with his chancellor, both with institutions equipped to support them, the new prime minister will be creating exactly the positive dynamic recent administrations have lacked.