Kerslake review: Treasury ‘disempowers’ rest of Whitehall

By on 22/02/2017
Lord Kerslake, former head of the UK civil service

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.

For up to date government news and international best practice follow us on Twitter @globegov

See also:

UK Treasury and Cabinet Office urged to help senior officials stand up to ministers

Tom Scholar appointed new permanent secretary of UK Treasury

Former UK civil service head to chair public scrutiny charity

UK minister signals rethink on ‘guided distribution’ performance management

UK Treasury ‘mysterious and fearsome’ – former civil service head

 

About Tamsin Rutter

Tamsin Rutter is a journalist based in Brussels, Belgium. She writes on a variety of topics, including public services, cities, local and central government and education. She was formerly the deputy editor of the Guardian’s Public Leaders Network and Housing Network.

One Comment

  1. Jag Patel

    22/02/2017 at

    It is only right that the Treasury should exert its financial control over the spending departments by telling them what they have to do in order to receive funding, given that they have consistently failed to stay within their allocated budgets year in and year out – especially the Ministry of Defence.

    This is exactly why the Treasury should consider exercising its power of coercion to replace the public subsidy given to certain industrial players like Defence Contractors, with Private Sector funding. Not only will such a bold move ease the pressure on the Exchequer, but it will also go some way towards tackling the budget deficit – and with it, the bourgeoning national debt.

    This innovative proposal is at the heart of a modern Defence Industrial Strategy that puts the National Interest first, not military equipment manufacturers’ commercial interests. It comes in the form of written evidence submitted to and published by the Business, Energy and Industrial Strategy Committee which is conducting an inquiry into Industrial Strategy.

    The submission observes:

    “It is called the Private Sector for a reason – so that it can use Private Sector funds, not Public Sector subsidy to innovate, grow, create jobs and make a profit. It is the job of Government to foster an environment which causes this to happen, within the context of a modern Industrial Strategy.

    If the Government is going to intervene in the market with public funds to stimulate economic activity and boost export-led growth, then provision of this subsidy should be made conditional upon Private Sector players making an equivalent contribution of investment capital to increase the competitiveness of their own products and services, both in the domestic and export markets.

    As for the Ministry of Defence, there exists no evidence that its long-standing policy of securing input of Private Sector investment capital into defence equipment programmes is being applied, which means that they continue to be funded exclusively by the taxpayer – yet, the Intellectual Property Rights for the resultant fully engineered equipment, which rightly belong to the Exchequer, is simply handed over to the main Contractor for nothing in return!

    Accordingly, to avoid repeating mistakes of the past, a revamped Defence Industrial Strategy should have at its heart, a built-in mechanism which elicits Private Sector capital into defence equipment acquisition programmes, as it’s first and foremost priority.

    This submission shows how to go about doing exactly that.”

    And it concludes:

    “At a time when senior members of this Government are firmly behind the view that this country should put economic security first and balance its books at the earliest, there exists an excellent opportunity to introduce a Defence Industrial Strategy which gradually replaces the public subsidy given to Defence Contractors with Private Sector funds.

    Ask not what Government can do for Business, but what Business can do for Government.”

    The full submission can be downloaded as a pdf file via this link:

    http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/business-innovation-and-skills-committee/industrial-strategy/written/36606.pdf
    @JagPatel3 on twitter

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