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19 June 2024

The Labour Party must forge a new national prosperity

Power should shift from the dead hand of the Treasury to Britain’s devolved authorities.

By Paul Collier

To comprehend the great divide between the prosperity of London and Edinburgh and the distress in other parts of the country, we need a perspective not of the last 14 years of Conservative rule, but of the past 40 of British history.

Britain has a distinctively dysfunctional bureaucracy. Voters fail to grasp how atypical our system of governance is: it is centralised in the Treasury. Recent studies have shown that the Treasury’s staff see themselves as warriors protecting taxpayers against the profligacy of Whitehall’s ministries and local governments, vetting and vetoing requests for spending.

Treasury vetting is exceptionally short-termist. It refuses to give other departments or local governments budget commitments beyond the fiscal year, so they can’t plan over a sensible horizon how to implement policy. The fixation on the short-term arises from the Treasury’s core role: setting the budget. In the annual scramble to scale back spending requests to projected revenues, there is no voice for the future. This is why Britain has such a low share of national income devoted to infrastructure.

Most dangerously, the Treasury is confident and socially exclusive. The former leaves it unwilling to doubt its beliefs. The latter denies its staff personal experience of distressed communities. Over-confidence and detachment have frustrated the normal process by which an organisation learns from failures.

From 1980, the Treasury has tightened centralised power over local government and Whitehall’s other departments. The “Levelling Up” programme, for example, has been starved of funds, while the Treasury has vetoed 90 per cent of bids by local governments for money from the Home Office (I know because I was an adviser on the programme).

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By “taking back control” over how government money is allocated and spent in the regions, the Treasury compounded the fundamental problem of over-centralisation. The upshot was to aggravate social divergence between the few people in privileged communities and many in distressed ones. This deterioration shows up in changing life-chances between generations. Millennials are worse off than baby boomers and Gen Xers; and Generation Z expects to be worse off still. Young people need credible hope that their future will be better.

The errors of four decades of Treasury misrule have left the economy fragile. We don’t save enough or pay enough tax and so we are dependent upon foreigners buying our government debt. The idiotic premiership of Liz Truss, for which she and Tories must take responsibility, greatly aggravated this situation: those foreigners who buy government debt are now wary. Italy found itself in a similar doom-loop of declining foreign confidence and rising interest rates a decade ago. The European Central Bank eventually rescued it. Nobody is going to rescue Britain.  

Unlike Truss, Keir Starmer epitomises caution: a Labour government is not going to plunge the nation into a doom-loop. But will it give young people the credible hope?

The key to fixing the nation will be devolution. Our regional authorities, for which Manchester’s Andy Burnham is the obvious spokesperson, should be accountable not to the dead hand of the Treasury, but their local voters. Those mayors, not the Treasury, should hold the budget and authority to reshape their economies. They should have the powers and budgets to enable local firms to generate well-paying jobs, and to equip youth with the skills to fill them. By setting out on that path, Labour can offer young people around the country the credible hope that many have been denied.

This article is part of the series “How to fix a nation

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