The Treasury should stick to wider macro-economic policy and avoid "micro-managing" government departments, two former heads of the civil service have said.
MPs on the Public Administration and Constitutional Affairs Committee (PACAC) are part-way through a major inquiry into the work of the civil service, and part of their focus has been on the way the so-called "centre of government" – the Treasury, the Cabinet Office, and Downing Street – interacts with the rest of the Whitehall machine.
Under chancellors George Osborne and Gordon Brown the Treasury was seen to exert a strong influence on the work of individual departments, but there has been speculation that the current chancellor, Philip Hammond, is keen for the finance ministry to play a more low-key role.
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PACAC on Tuesday took evidence from Lord Kerslake – who served as head of the civil service from 2011 to 2014 – and Lord Butler, who was cabinet secretary under three successive prime ministers, Margaret Thatcher, John Major and Tony Blair.
Cheryl Gillan asked the former top officials the extent to which the Treasury should continue to act as the "corporate centre" of government.
"What departments can experience is not just some micromanaging, but [intervention] by people who've only been in the role for six months" – Lord Kerslake on the Treasury
Kerslake is currently carrying out a review of the Treasury for the Labour Party – due to be published in the new year – and he told MPs that he believed the finance ministry was better off managing the wider economy, setting spending limits, and then letting departments get on with the job.
"The Treasury has some core roles around the macro-economy, ensuring effective financial management, and I think those are functions it has brought a great deal of expertise to," he said.
"Where I think the problems occur [are] if it extends its role beyond that into playing a key role in the development of social policy, for example, or micromanaging the activities of departments. I think that creates its own problems, and we have seen examples of that in the past."
Kerslake said that concerns with an overbearing Treasury were not just limited to the fact that the finance minister has only as "small number of civil servants", pointing out that it also has "a high level of turnover" in its workforce.
"So what departments can experience is not just some micromanaging, but [intervention] by people who've only been in the role for six months," he said. "And that is both frustrating and unhelpful."
Lord Butler, who started his civil service career in the Treasury, meanwhile said he had had found it "absurd" when he took over as cabinet secretary "that the Treasury should try to micro-manage departments".
"Just to give one example, the Ministry of Defence with its vast expenditure and vast responsibilities, being micromanaged by a division of the Treasury with six people in it who then interfere in the decisions that the Ministry of Defence made, was, I thought absurd," he told MPs.
Butler said the belief that the Treasury was too powerful had been a key factor contributing to Thatcher's "Next Steps" initiative in the 1980s, which saw the spinning out of much of the government's business into arm's-length agencies.
But he said the UK civil service had "reverted in the last few years to more central control than is good for the system".
Kerslake and Butler's remarks come ahead of the Autumn Statement, the first major fiscal event since Hammond took up post as chancellor in the summer.
A Whitehall source told The Guardian this week that the new chancellor would use the statement to reassure ministers that he did not intend to interfere in the day-to-day running of their departments.
“He’s going to make clear publicly: ‘I’m not going to do your jobs for you,’” the source told the news outlet.
While Kerslake struck a sceptical tone in his comments to PACAC about the merits of a powerful Treasury, the former head of the civil service – and ex-communities department permanent secretary – said there were two situations in which it was better for the centre of government to play a strong coordinating role.
"One is that, I think, if you are going to leave responsibility with departments you have to have ways of dealing with the cross-cutting issues," he said.
"The second point is that you do need strong functional leadership of things like finance across the civil service to ensure consistency."
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