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What to do about Fortress Treasury and its grip on British politics?

The Treasury is a regressive force holding the strings at the centre of British politics. Shoudl be break up its power, or try to claim it?

Christine Berry
9 June 2014
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Almost every campaigner has run up against Fortress Treasury at some point in their careers. Most recently, I’ve run up against it via a research project exploring barriers to the adoption of new indicators of progress – i.e. measures which tell us how we are doing in a broad sense, taking economic, social and environmental factors into account. One of the key barriers we identified was that the policy machine just isn’t set up for the kind of holistic, multi-dimensional approach which this implies. In the UK, this problem has a name, and its name is Treasury. The Treasury’s obsession with GDP growth, and with market efficiency as the one true path to achieving it, is inimical to any attempt to revisit the notion of progress or the way economic policy is done.

What’s more, it has increasingly come to permeate the rest of government. Tony Blair famously tried to promote ‘joined up government’, which theoretically should be part of the solution to the problems we identified. But the more I looked into it, the more I came to feel that it had become part of the problem. Government had been joined up alright – it’s just that, in an awful lot of cases, it had been joined up to the dead hand of the Treasury and its way of seeing the world. As the Institute for Government puts it, Blair’s innovations were accompanied by the Treasury’s emergence “as a serious domestic policy player”. The same might be said of the twin Blairite initiative of ‘evidence based policy’: it turned out that ‘evidence’ more often than not meant benefit-cost ratios based on neoclassical economic models with little resemblance to reality, hiding hugely significant political judgements in the guise of objective analysis.

The stories of various current and former officials confirm the impact this has had. A DCLG official told me of social researchers being sacked and replaced by economists, and of having to try to justify the benefits of community cohesion in monetary terms. A former DEFRA official recounted the experience of the ‘Growth Review’, in which teams focussed on reducing waste or increasing biodiversity had to prove their contribution to growth or see their funding cut. Perhaps most disturbing was the BIS official who blithely dismissed the concerns of DEFRA officials about having to monetise the benefits of regulation to protect ecosystems: deep down, he suggested, they knew that the benefits just didn’t justify the costs.

As for what we can do about all this, there seem to be two broad schools of thought, which can be roughly characterised as break-up or reform. The first says that the Treasury is simply too powerful: its dominance over other departments reflects and perpetuates the dominance of economic policy objectives over other goals. The answer is to separate control over the purse-strings (i.e. doling out money to government departments) from control of economic policy (i.e. making crucial decisions about when and how government intervenes in the economy). This could mean creating a new department (along the lines of the ill-fated Department for Economic Affairs in the 1960s), transferring functions to an existing department (such as the Department for Business, Innovation and Skills), or handing them over to a central co-ordinating body (such as the Cabinet Office or the Prime Minister’s Strategy Unit).

A number of specific proposals have been made within this broad approach. Some emphasise the need to end the anomaly of Treasury control over financial regulation – which effectively puts the City in a privileged position compared to other sectors by giving it a direct line to the Chancellor. Others, more concerned with the concentration of power in and of itself, argue for reducing the Treasury’s control over the purse-strings themselves, by spreading fiscal powers to regional and local bodies.

The second school of thought says that the Treasury’s cross-governmental influence is actually a perfect vehicle for the more holistic, enlightened economic policy making we need –– if only we could turn it to this purpose. Of course, we all know from debates about banking reform the dangers of vague and platitudinous exhortations to ‘change the culture’ of an institution. But it is possible to envisage a concerted programme of reform that would make this strategy meaningful – and in fact, looking at the Blairite reforms isn’t a bad place to start.

Just as there was then a concerted push to hire more economists and plough research funding into neoclassical microeconomics, so you would need a concerted push to nurture and hire more heterodox economists, as well as analysts from other disciplines like environmental science and psychology. Just as cost-benefit analysis was rolled out across government as the dominant means of allocating budgets and assessing policies, so you would need to develop and roll out new tools – whether they be well-being analysis, multi-criteria analysis, or impact assessments which put sustainability front and centre rather than treating it as an add-on. And to drive all this forward, you would probably need to change the Treasury’s goals and remit to give explicit weight to things like sustainability and well-being.

If all this sounds incredibly tedious and bureaucratic, that’s probably because it is: nobody ever manned the barricades for new tools of analysis, changes to recruitment procedures or redrawing of departmental boundaries. But we shouldn’t let this fool us into thinking that it would be either easy or apolitical. This isn’t a matter of making a few tweaks to the Green Book, but of challenging an utterly dominant belief system, deeply rooted in an incredibly powerful institution.

In fact, which of the two approaches people prefer seems to depend largely on which they think is more feasible: changing the Treasury’s culture, or challenging its power. On the one hand, turning around such a big ship is far from easy, particularly in the context of the even bigger challenge of achieving a paradigm shift away from neoclassical economics. On the other hand, power is never given up willingly – leading some to believe that, as one former official put it to me, no current or prospective Chancellor would ever agree to “cut off their own legs” by ceding some of the Treasury’s functions.

In the end, of course, the two approaches aren’t mutually exclusive – and it seems likely that both will be needed if we are to address the many and varied problems with the current model. Perhaps more importantly, neither will necessarily transform economic policy unless they’re done for the right reasons and in the right political climate. Anyone who doubts this need look no further than Samuel Brittain’s potted history of the Department for Economic Affairs, which he says was seen variously by its creators as “a force that gave growth priority” and “a single major overlord department in charge of all aspects of economic policy”. Hardly a model for those concerned either about the Treasury’s outlook or its excessive power. The real challenge, then, is to create the right climate for change – which demands joining the dots between the arcane details of the status quo and the everyday struggles of campaigners and citizens up and down the country.

The fact that taking on the Treasury is such a huge challenge doesn’t mean we should shy away from it. What it does mean is that we need to be ready to build a broad and powerful coalition for change, and to be as certain as possible that this investment is being ploughed into demands that will be truly transformative.

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