Transforming the Treasury: the biggest and best idea of all

The Treasury is the biggest block to progressive policies in Britain. It's time to transform it.

David Powell
12 May 2014

The Treasury, Wikimedia

Anyone who’s ever tried to get the UK Government to do anything at all is pretty likely, at some point, to have butted their head against the walls of the Treasury.

The Treasury is the spider at the heart of the Government web. It holds the purse strings and takes pride in saying ‘no’ to requests for spending. And it’s guardian and promulgator of Whitehall’s economic thinking: whatever the Government in general thinks about markets, regulation, externalities and economic modelling, it thinks it from here.

Treasury matters. And just looking at environmental policy, there’s a charge sheet as long as your arm of things the Treasury has interfered with or blocked.

The Green Investment Bank, for example: an institution Treasury never wanted in the first place and fiercely resisted; then, when political pressure got it introduced above their heads, continued to put obstacles in its way, like not letting it borrow from the capital markets.

Or the secret rejection by the Treasury’s chief economist, Dave Ramsden, of a plea from other departmental chief economists for a review into the implications of future resource scarcity for our economic health.

Most currently, the simmering debate about the fourth carbon budget – a carbon cap for the UK economy for the period 2023-27, mandated in law. The Chancellor is determined to water down the budget, causing great consternation amongst business, and the Treasury’s economic models stock his barracks. As our new report shows this economic analysis, which concludes that a tougher carbon budget is worse for GDP, bears as much relation to reality as a unicorn playing Ker-plunk.

There are (at least) three problems here.

  1. Treasury hasn’t got used to the idea that going green doesn’t have to come with an economic cost. For Treasury, things like cutting carbon are about putting shackles on otherwise ‘free’ markets (as if there ever was such a thing), and thus to be feared. It’s notable that when the UK’s carbon budgets were first introduced after the 2008 Climate Change Act, all government departments, except one, were given explicit responsibility to help deliver their fair share. Guess which one?

  2. Treasury has to do both short and long-term economics, and short-term wins. Yes, it’s not just Treasury that prioritise the short-term; electoral machinations and the way financial markets work also mitigate against investment today to save tomorrow. But giving Treasury such conflicting roles is a bit like putting a football club’s accountant in charge of transfer policy. Usually - particularly at the moment – short-term wins, and “green crap” loses.

  3. Ideology – an obsession with increasing GDP, a determination to put everything into economic spreadsheets, a neoliberal belief in the power of free markets, and a resonant suspicion of regulation. It stems from the very heart of the institution – not the workaday economists, but the middle managers with, as one former civil servant suggested to me, a business background, stern haircut, and just enough economics knowledge to be dangerous. Have a look at the ’10 propositions’ espoused by the Treasury’s permanent secretary, Sir Nicholas Macpherson.

See also the difficulty for campaigners in getting anything at all out of the Treasury via Freedom of Information. And, more sympathetically, Treasury is a surprisingly small department with a tentacular mandate, leading to some seriously overworked and harried staff.

What’s to be done? It’s not just as simple as changing who’s in charge in Number 11. Sure, George Osborne is (for example) the nation’s lead campaigner for austerity, and everything the Treasury does follows from that. But even if Tony Benn or Caroline Lucas were made Chancellor, it wouldn’t be job done, because of how the institution thinks and the clout it has.

Some ideas: Treasury needs to be given an explicit clear mandate to lead the development of a world-leading, resource efficient, ultra-low carbon economy focused on improving people’s wellbeing. It requires a revolution in the way it thinks about the information it holds, making its economic models public. It needs a root-and-branch overhaul of its attitude to long-term systemic risks like resource depletion and a carbon bubble in financial markets – issues it shirks. And it has to start working to indicators other than just GDP –a metric that, as inequality rises and real wages sputter, seems ever more over-privileged.

And what about bigger, structural reform to reduce the Treasury’s ability to scupper long-term green investment? There are two ideas floating around: first, break it up, creating a proper, powerful long-term economics department – but don’t do it like the ill-fated Department of Economic Affairs in the 1960s, where the new body didn’t actually have access to any of the financial levers it needs to do the job. Or, sharply reduce the amount of cash coming into Treasury in the first place, by getting serious about a radical programme of decentralisation that sees more money retained and spent locally, bypassing Whitehall entirely.

This ‘big vs small’ tension is vexing both main parties’ thinking about their electoral palette: what does decentralisation and localism actually mean? With so much of the national response to environmental crises needing to be delivered at the local level – think of city-wide responses to issues like public transport, energy and waste – I’d argue that unless there’s real power over long-term cash, greater local autonomy isn’t really worth the paper it’s written on.

A year out from election, with big ideas illusory and Grail-like, the legendarily scurrilous and problematic Treasury tends to become a target. The Green Liberal Democrat group has already formally proposed that the Treasury be broken up. And last summer Ed Balls singled out Treasury in his major green speech, acknowledging that Treasury is a block on good environmental policy, and pledging to reform it if elected.

We’ve been here before of course. George Osborne promised in 2009 that under his watch the Treasury would lead the fight for green jobs. This turned out to be, well, not entirely true. For such sentiment to be anything other than skin deep, Treasury overhaul needs to start from day one; Chancellor and Prime Minister need to be on the same page, and marching into office with their sleeves already rolled up - before the weight of the institution clubs to death their reforming zeal. 

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