Kerslake review: Treasury ‘disempowers’ rest of Whitehall
The role of the UK Treasury has expanded to the point where it is “disempowering” other Whitehall departments, according to a review released this month by former Whitehall chief Bob Kerslake, who calls on the Treasury to revert to a more sharply defined mandate.
The report argues that under powerful former chancellors Gordon Brown and George Osborne, the UK’s finance department developed excessive influence over policymaking in spending departments. In his foreword to the review, Lord Kerslake criticises the “increasing role that the Treasury has played in recent years in arbitrating and even initiating domestic policy”, which he argues goes “well beyond the core Treasury roles of overseeing the macro-economy and managing the government’s finances”.
The effect of this change “has been both to disempower departments and stretch the Treasury beyond its underlying capabilities,” he says.
Kerslake was permanent secretary at the communities department from 2010-15, and from 2012-14 oversaw corporate management across Whitehall as head of the civil service – working in a leadership role split awkwardly with cabinet secretary Sir Jeremy Heywood, who managed policy and the cabinet. He was commissioned to examine the Treasury by Labour shadow chancellor John McDonnell, but the report’s publication was delayed following the Brexit vote and the appointment of a new UK prime minister.
Kerslake told Global Government Forum he had so far received no response from the Treasury since the publication of his review, and expected it to stay that way.
“We need a strong Treasury, but strong in the right ways,” he said. “The Treasury should focus on doing its core macro economic and finance functions really. In these areas, it needs if anything more resources, particularly with impact of Brexit. It should do less of second guessing departments on the policy remits.”
The report complains that there are few opportunities within Whitehall to challenge Treasury decisions before they’re pushed into government policy through a Budget or spending review. “The Treasury holds nearly all the cards and can (and does) use its financial control to exert agenda control, by telling departments what they have to do in order to receive funding,” it says.
One of the review’s key recommendations is to narrow the focus of the Treasury, and instead create a strategy and delivery unit in the Cabinet Office which would focus on strategic planning, coordinating policy across departments and monitoring departmental performance. This unit could also act as an “honest broker” in budget negotiations between the Treasury and other departments.
Theresa May has already slimmed down the Treasury’s economic development brief, strengthening the role of the Department for Business, Energy and Industrial Strategy with new responsibilities to develop a more explicit industrial policy.
George Osborne’s city devolution agenda has been weakened since May’s chancellor Philip Hammond took over at the Treasury, however. Kerslake, a former city council chief executive and a long-time advocate for greater fiscal devolution from Whitehall, has criticized the reduced push on this issue by the current administration. And the review calls for responsibility over long-term economic development, including city-regional devolution deals, to be transferred to the business department. The Treasury should, however, have a dedicated unit to promote greater fiscal devolution, the report continues.
There is a need to go beyond devolution deals, and a more comprehensive approach involving fiscal devolution and new income sources for local government can only be led from the Treasury, Kerslake told Global Government Forum.
The report does not – as some experts do – advocate breaking up the Treasury by separating its economic and finance functions into different ministries, as occurs in countries such as Germany and Ireland. It argues that the disruption caused by a major Whitehall restructure would outweigh the benefits.
But this was an “on balance” decision, contingent on the Treasury making other changes, Kerslake explained to us. “Separate ministries can and do work well in other countries,” he said.
Former KPMG deputy chairman Alan Buckle, former Birmingham city council chief executive Stephen Hughes and Trades Union Congress general secretary Frances O’Grady helped Kerslake with the review, which looked at the current role, responsibilities and operating mandate of HM Treasury.
In an open letter published last year, several think tanks including the Institute for Government called on the new chancellor to start simplifying the role and output of the Treasury, and prevent autumn statements from becoming second budgets. He has since suggested that autumn statements may be dropped.
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