Brown's new-look Treasury

On that bright June afternoon when Gordon Brown finally left for the palace to become prime minister and First Lord of the Treasury, there was a touching scene at the Treasury building on Horse Guards Road — most Treasury officials turned out on the balconies to cheer him on his way. Of those officials, three-quarters had not known any other boss. Symbolically, even the building had changed under his chancellorship, with a major PFI-project completed in 2002 replacing the crumbling, yellowing and depressing building with a clever open-plan modernisation.

The Treasury that Gordon Brown left behind was a different organisation to the one he inherited in other ways too — more long-termist, more policy-orientated and more focussed on microeconomic issues. Under Brown’s leadership, Treasury officials influenced spheres traditionally considered the preserve of other departments, assuming a leading role in everything from third world debt relief to raising productivity.

For over a decade, Tony Blair seemed unwilling to wrest power away from his mighty chancellor, who enjoyed an extraordinary relationship of near-parity with the prime minister. Comparable to Gladstone and Lloyd George, Brown was undoubtedly the most dominating and powerful chancellor in the post-war period. With the departure of such a colossus, questions surround the future of the Treasury — will we see the resumption of normal relations between prime minister and chancellor? Will the Treasury’s influence over the rest of Whitehall be reduced or reconfigured? Will the Treasury give greater emphasis to its traditional role as a finance ministry?

Now First Lord to the Treasury, Brown is nominal head of the department he led for ten years. The title of First Lord relates to the prime minister’s position as head of the board of seven commissioners of HM Treasury. In practice, the board of commissioners is now a redundant body — it last conducted serious business in 1856, although Margaret Thatcher reconvened the Board in 1983 to mark the retirement of Douglas Wass as permanent secretary to the Treasury.

In modern times, prime ministers have not concerned themselves with the day-to-day business of the Treasury. Yet an ‘active’ First Lord can play a decisive role in determining the direction of economic policy, a power that derives from their central position at the apex of the Whitehall machine.

Apparently uninterested in economic policy, Blair had less influence over macro-policy decisions and the content of budgetary policy than any prime minister in living memory. Although Blair was able to ‘bounce’ Brown into raising health spending to the European average in 2002, the biggest decision — whether Britain should join the European single currency — was effectively hijacked by Brown and the Treasury. This was historically without parallel. Post-war foreign economic policy decisions, ranging from devaluation in 1947 to UK membership of the Exchange Rate Mechanism, were invariably led by the prime minister, often wielding a veto power.

The Blair-Brown relationship may prove an aberration, and it is likely that the next few years will see a return to the normal pattern of relations between prime minister and chancellor. Sensitive to accusations of ‘Stalinist’ attributes, it seems that Brown will attempt to severely curtail his natural tendency to hands-on control and leave Darling in real charge of the Treasury.

Early indications are mixed — in the Northern Rock crisis, involvement from No. 10 appeared minimal. However the ‘leak’ from Downing Street, unbeknown to the Treasury, that the chancellor was reconsidering his pre-budget report proposals on capital gains tax suggests old habits die hard. The official Treasury always tries to keep on the right side of its First Lord (the Treasury is often in a minority of one without the PM’s support).

But there are worrying signs that responding to the needs of the prime minister might run counter to Treasury policies carefully developed over the medium term and thus potentially damage its reputation. The prime minister’s non-decision over an election produced announcements in the pre-budget report by the chancellor on inheritance tax and non-domiciles’ tax status, that smacked of rush and bounce. It is also likely that Brown will be the most strategically involved First Lord since James Callaghan.

What future does the Treasury have now that the most dominant chancellor of the post-war period has moved next door to No. 10?

In the transition period to him becoming prime minister, much speculation focussed on whether Brown would split the department he led for ten years. It was widely believed that the Treasury would be turned into a freestanding ministry of finance, along the lines of other industrialised nations. As a counterpart to this reform, a powerful Ministry for Economics, Productivity and Trade would be established, with the Treasury’s remaining functions incorporated with trade from the DTI. Many argued that the Treasury’s increased power was down to the position of Brown within the Blair government, and that a failure to cement changes in the machinery of government would see the Treasury revert to its traditional role of saying ‘No’, once again subjugating the interests of the ‘real’ economy in favour of finance.

That this was not done is evidence of Brown’s concern not to appear to be destroying an alternative locus of power, having created it as chancellor. It also suggests that Brown and his advisers viewed the Treasury as a successful department that needed to maintain its wider range of roles — the onus for the productivity and skills work now will fall on the Treasury and DBERR jointly.

 In his first interview as chancellor, Darling confirmed this view on the Treasury’s future role. Asked by the Financial Times whether the Treasury was going to continue its interest in microeconomic policy areas such as tax credits and productivity, Darling replied: ‘I’ve always believed that the Treasury had to be more than a finance ministry’.

Although there will be a 20 per cent reduction in Treasury staff numbers following the comprehensive spending review, it is difficult to envisage the Treasury sacrificing its hard-won influence in the development of microeconomic policies. It also seems likely that decision-making will be more collegiate under the new chancellor, with the cabinet given a greater role.

Darling appears genuinely to believe that he should have an equitable relationship with his colleagues, and that the cabinet should be collectively responsible for the government’s policies.

Brown’s departure was accompanied by the break-up of a ministerial team with unprecedented experience of the department. Dawn Primarolo spent over a decade at the Treasury — serving first as financial secretary, before replacing Geoffrey Robinson as paymaster-general. Ed Balls, Brown’s closest political ally, worked variously as economic adviser to the chancellor of the exchequer and chief economic adviser to the Treasury between 1997 and 2004. Balls, now an MP, returned to the department as economic secretary in May 2006 after a two-year absence. His promotion to the cabinet as secretary of state for children, schools and families means that the Treasury has lost one of its dominating personalities and influences.

Andy Burnham replaced Stephen Timms as chief secretary to the Treasury in the June re-shuffle. Having enjoyed a rapid rise through the ministerial ranks, Burnham takes on a politically sensitive brief which includes overall responsibility for public expenditure, efficiency in public services, and the charged issue of public sector pay and pensions.

In an early indication of the government’s new approach, Burnham announced an overhaul of Public Service Agreements (PSAs), reducing the number of targets agreed between the Treasury and other Whitehall departments from 110 to 30.

The majority of the Treasury ministerial team are now women. Jane Kennedy replaces John Healey as financial secretary, giving her strategic oversight of taxation as a whole. Angela Eagle takes up the resurrected post of exchequer secretary, a position that has lain vacant since 1997. The appointment of an exchequer secretary is a result of Brown’s decision to appoint a paymaster-general to serve outside the Treasury — Tessa Jowell was given the post, now based in the cabinet office. Eagle has responsibility for microeconomic policy — an area where the Treasury’s influence increased between 1997 and 2007. Although she only entered parliament in 2005, Kitty Ussher is now economic secretary to the Treasury and has begun to make her mark as a very activist ‘city minister’.

With the removal of the divisions created by the Blair-Brown rivalry, co-ordination by the cabinet and cabinet office has been brought back into fashion. The number of cabinet committees has been reduced from fifty to thirty, reflecting a refocused government programme.

Ed Miliband, who sits on twenty-five of the cabinet committees, has a key role in co-ordinating government policy. Unusually for such a junior member of the cabinet, Miliband chairs subcommittees on community cohesion and equality, public engagement and delivery of services and social exclusion. Previously chair of the Treasury’s council of economic advisors, Miliband will have a key influence on the future direction of the Brown government. He is the eyes and ears of the prime minister, and could almost be described as the prime minister’s assistant.

The most significant structural change that Brown instituted relocated the Prime Minister’s Delivery Unit (PMDU) into the Treasury. This has a doubled-edged quality — it paradoxically makes the Treasury more powerful than when he was chancellor yet also ensures that it reports jointly to him.

In October, Ray Shostak was appointed the new Head of PMDU, combining this role with his position as director general of performance at the Treasury. The Unit will now dovetail with the Treasury’s responsibilities for setting public spending targets and the associated PSAs and for the first time bring together monitoring of public sector performance with the allocation of public money.

Treasury influence continues through ‘colonisation’ of the No. 10 machine. Four members of the prime minister’s office are former Treasury officials: Tom Scholar, Jon Cunliffe, Jeremy Heywood and Michael Ellam. Having worked previously as his principal private secretary at the Treasury, Scholar returned from his position as UK executive director of the World Bank and IMF to become Brown’s chief of staff. Cunliffe, a former second permanent secretary to the Treasury, is the lead No. 10 official on European Union business and the international dimensions of key issues such as trade, energy, and climate change.

Heywood has held a variety of senior roles in the Treasury, including head of securities and markets policy and head of corporate and management change, and has also served as principal private secretary to two chancellors, Norman Lamont and Kenneth Clarke. At No. 10 he will assume overall responsibility for domestic policy and strategy.

Formerly director of policy and planning at the Treasury, Ellam leads Downing Street’s communications strategy. The flip side of this net benefit to the Treasury of having seasoned Treasury-men within No. 10 is that some of the most able top and middle managers of the department are unavailable. Colonisation can also be seen as asset stripping.

When at the Treasury, Gordon Brown was fond of joking that there are two kinds of chancellor — ‘those whose careers end in failure and those who get out in time’. With harsher economic times ahead, it seems that Brown may fall into the latter category.

The pressures of dealing with an economy in slowdown may mean that Darling has to invest more time in his role as a finance minister, convincing colleagues of the need to control expenditure rather than devising policies to improve long-term economic performance. Added to this, in the Northern Rock crisis Darling is faced with the first test of the tripartite system for monetary and financial regulation, a system set up by Gordon Brown. The Treasury is relearning how to deal with crises, and the ever present stress of ‘events dear boy, events’.

Professor Colin Thain and Dr Ross Christie, School of Economics & Politics, University of Ulster are engaged in an ESRC-funded research (RES 062 23 0369) project ‘The Treasury under New Labour’ (website http://www/.treasuryproject.org).