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5 February 2001

The great white shark of Whitehall

Forget about Tony Blair's "presidential" powers. It is HM Treasury that now dominates government. It

By Stuart Weir

One of the abiding images of new Labour in power, as described in Andrew Rawnsley’s compelling book, is of Gordon Brown being driven away from the Blackpool party conference in 1998 and heckling Tony Blair’s conference speech as it came over the car radio. “The New Deal is up and running.” (“He didn’t want that.”) “What Tory government would have introduced the first statutory minimum wage?” (“He opposed that.”) “The working families tax credit . . .” (“He fought that.”)

Downing Street wrote the incident off as just another bubble in the froth of Rawnsley’s journalism. Froth is pretty insubstantial stuff, but it is often also a sign of agitation below. And so it has been for the relationships between Brown, Blair and Peter Mandelson.

Mandelson’s resignation undoubtedly strengthens Brown. But what should concern us is the power of Her Majesty’s Treasury, over which he presides. There has been a major power shift within government. The list of achievements that Blair was presenting to party delegates belonged largely to Brown and the Treasury. Political analysts have concentrated on Blair’s creation of a “secret” prime minister’s department. But the Treasury, under Brown, has taken on a dominant policy role in Whitehall which is not fully appreciated. It is the great white shark of government, a subterranean but mysterious presence that everyone fears. Peter Kemp, formerly a top Treasury civil servant, has argued that it is taking “a position of power which is dangerous in our society”. Its role has increased, is increasing, and ought to be diminished.

It was Sir Terry (now Lord) Burns, permanent secretary until he was cast out by Brown in 1998, who set the Treasury on its new course. He decided that it should stop being simply a finance ministry and move into the wider policy domain across Whitehall. The old-style spending rounds began to evolve into the new fundamental expenditure reviews. The Treasury began to concern itself not just with what departments got but with how they spent it.

Brown has taken this process much further through the new public service agreements (PSAs) with spending departments. These are supposed to drive through improved services and policies by negotiating commitments and targets with departmental ministers and officials. The Treasury likes to present this as a “shared” process. But the Treasury naturally negotiates from a position of strength. First, it determines government priorities, controls the money and decides how much should be spent. Second, it now plays an active role in creating the departmental policies it pays for. Its public services directorate deploys roughly 200 staff in 15 spending teams and employs 250 officials in all across the Treasury. It has recruited expert staff, such as Lucy de Groot, who was chief executive of Bristol City Council. Her responsibilities include urban regeneration, social exclusion and the eradication of child poverty. Some brief!

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“Our job used to be to keep the sheep in the pen,” says John Gieve, until recently the director of Treasury Public Services. “We weren’t terribly interested in the departments’ agenda. We had our own agenda and it was to keep them in order. Saying ‘no’ is part of the Treasury role . . . We have to keep the totals within our fiscal plans, but they must be spent wisely and allow us to achieve the government’s aims and help improve overall productivity. And this is a role that has to be undertaken at the centre of government.”

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The 2000 expenditure review produced some 160 PSAs, or targets. They included 15 Treasury-led cross-departmental PSAs on issues such as welfare to work, Sure Start for children, local government, crime and drugs. Targets include: cutting recorded vehicle crime by 30 per cent by 2004 and domestic burglary by 25 per cent by 2005; reducing the time between arrest and sentence of persistent young offenders from 142 days to 71 days by 2002; reducing the availability of class A drugs on the streets by 25 per cent by 2005 and 50 per cent by 2008.

It is well known that Brown has enlarged the Treasury’s role in social policy, shifting the emphasis away from benefits to tax credits and reducing the social security department to a mere satrapy. That shift was dramatised by the fates of Harriet Harman and Frank Field, who did think the “unthinkable” on social policy, at least as far as the Treasury was concerned. But the Treasury’s power now reaches parts it never touched before. Within Clare Short’s international development domain, for example, Brown has appropriated the initiative for highly indebted poor nations and the Treasury has recently even conducted a review of conflict resolution in sub-Saharan Africa. At home, it is deeply involved in the confusing profusion of local urban regeneration and social investment schemes, zones and funds. It has just negotiated PSAs with 20 local authorities on pilot projects with a view to spreading them to the rest of local government. Targets include: 17 per cent of household waste to be recycled/composted by 2004; bus use up by 10 per cent by 2010. Where does that leave John Prescott’s ramshackle environment department?

The Treasury’s private finance initiative, now rebranded as public-private partnership, dominates virtually all public investment in hospitals, schools, public transport and other capital projects. It is widely recognised as being “the only game in town”. Projects are driven through, even in devolved Scotland and Wales, with minimum public consultation. Treasury spending teams helped scupper both the proposals of the Royal Commission on Long-Term Care for the Elderly and Richard Rogers’s blueprint for reviving cities. And, on Brown’s insistence, Blair’s pledge last year to bring UK health spending to average EU levels has been quietly put to sleep.

There is no doubt that there has long been a power vacuum at the centre of UK government. There is a genuine need for “joined-up government” in the loose federation that is Whitehall. When John Major became prime minister, he soon missed the powers and resources of the Treasury corps. Blair has been desperately seeking to strengthen prime ministerial control at the centre but, like his predecessors, he has very limited executive resources. It is the Treasury under Brown and the present permanent secretary, Sir Andrew Turnbull, that have filled the vacuum and become the powerhouse of the British executive. Forget about fears that Blair may assume presidential powers. For the time being, the Treasury steers Whitehall’s course and the Cabinet Office rearranges the deckchairs.

The UK already has an over-mighty political executive. The danger is that the Treasury will become too powerful an influence within it. Its new, near-monopoly hold on policy-making reduces the checks that the policies and views of other departments once applied. The Commons, already weak enough in challenging Treasury policy positions, is even weaker now that they come agreed by other departments. And do not assume that, once Gordon Brown has gone, we can stop worrying about it: the overall power of Treasury officials might well be greater under a weak Chancellor than under a strong one.

Turnbull argues that the Treasury’s new role, setting out clear public targets for policies, will make government more transparent and accountable. But who will assess whether targets have been met and how will they be evaluated? The Treasury has not been enthusiastic, for example, about allowing the National Audit Office to assess policies as well as outcomes. Many share the view of Sir Michael Partridge, permanent secretary at the Department of Social Security until 1995, that the Treasury “is expert at public expenditure but hopeless at policy-making”.

The Treasury presents its new role as managerial, but it is ideological as well – and heavily influenced by American ideas in social and urban policy.

The shift from benefits, and especially universal benefits, towards tax credits is a profound retreat on old notions of solidarity in social policy. “Targeting” is simply another word for means-testing, with its difficulties of low take-up and arbitrary administration. Stakeholder pensions are a poor substitute for the previous Labour government’s income-related pension scheme. This shift in policy thinking has been responsible for crises like those over single-parent benefits and the 75p rise in state pensions.

But worse is to come. Critics such as Peter Townsend, emeritus professor of social policy at Bristol University, warn that the Treasury under Brown is setting course for a permanent “two-tier society”. British society is becoming more and more unequal, the public-private divide is widening, and the economy is increasingly open to the pressures of globalisation. Treasury officials openly ask how far and for how long they can tax richer people to pay for state services they are increasingly dissatisfied with. The question for others is how far and for how long the Treasury should determine government responses. Quis custodiet ipsos custodes?

Professor Stuart Weir is the director of Democratic Audit, based at the Human Rights Centre, University of Essex