The Blog

Don't Go Breaking My Treasury

Breaking up, so the song tell us is hard to do but it seems all the rage at the moment. Scotland has teetered on the brink while UKIP and the Conservatives are at least up for us having a referendum on whether to break off from the EU.

Improve HM Treasury by all means, but don't imagine splitting the Exchequer into a finance and economic department is a cure all

Breaking up, so the song tell us is hard to do but it seems all the rage at the moment. Scotland has teetered on the brink while UKIP and the Conservatives are at least up for us having a referendum on whether to break off from the EU.

Meanwhile, there have been a number of voices in recent months arguing for the break of up of another venerable old British tradition - Her Majesty's Treasury.

'Hurrah!', many in local government might cry; how terrific to break apart that body that stifles good ideas and innovation; that sees the danger of pennies getting out of control but can't see the blindingly obvious case for investment in early prevention action that could save so much more; and an institution that accretes and husbands power, refusing to allow any hopes of decentralisation and devolution from really taking hold.

One of the best papers arguing for this has been by former Vince Cable special adviser Giles Wilkes in a paper for Nesta. Clearly stung by what he saw as the Treasury's 'wheeze-itis', over-centralisation and short-termism, as well no doubt as its uncomfortable relationship with the Business department that is also trying to run an aspect of economic policy, Wilkes wants to split the Treasury up and create a system closer to that operating in a number of other countries.

Here there is a finance ministry; an economic ministry - that Wilkes sees merging with BIS to form a growth department; and an Office for Management and Budget which he wants to merge into Downing Street.

From another angle there have been arguments from further to the left that argue that the Treasury holds back radicalism. The Treasury obsession with the financial markets - always felt to be like a lion at the gate, salivating in anticipation of borrowing getting out of control - dominates their thinking. So radical Keynesian and , interventionist policies and any serious attention on things like equity will never happen while the Treasury is so powerful.

There is much to be said for these arguments but I think they should be rejected. I am an ex-insider so may be treated with suspicion, but as I have written for the Fabian Society recently break-up is the wrong solution. Why do I think this?

First, because history has shown that the Treasury, given the right political leadership, is perfectly capable in getting behind growth and equity orientated policies. The period when Gordon Brown was Chancellor was a prime example. Indeed the biggest accusation that comes from experts is that they became so obsessed with this that they lost track a little of the more mundane job of really keeping tabs on how borrowing was doing.

Second, we do need the Treasury to take its control of spending and value for money very seriously - something arguably even more important for a Labour government since the party has so many things it wants to achieve. Splitting it up could only weaken that.

Third, trying to split up the Treasury has been tried before and it did not work. Sure, the Department of Economic Affairs led by George Brown in the 60s was a long time ago. But the underlying factors - aside from personnel ones - that made it fail are still alive today.

So what should we do? First, we can improve the way the Treasury works. This means altering procedures and rules to encourage more long-term thinking and investment into early action and prevention areas; more use of modernised public service agreement (PSA) approaches to help keep the focus on outcomes not spend and to break down departmental silos; and more openness and accountability to the public and parliament.

Second we can look towards a new version of the National Economic Council that ran from 2008-2010. The NEC was a high-level cabinet committee, chaired by the prime minister, which gave a clarity, direction and sense of urgency to economic policy making and implementation after the economic crash. It brought departments much more together, clipping the wings of the Treasury sufficiently to allow coordinated economic policy making and execution to occur . Although the crisis feel of the times was crucial to its effectiveness, it would be well worth seeing if something similar might work in the future.

In any case the Treasury will have to adapt as and when all the parties deliver on their promise of more localism. Many in the Treasury have always realised that letting city regions control much of the public expenditure that goes on in their areas should lead to much more efficiency. Indeed the last government's Total Place programmes were starting to suggest significant financial savings as well as better services for the public. The Treasury needs to ensure that this happens, to encourage best practice and sensible accountability but without imposing structures that stifle local innovation. That is quite a cultural change.

The Treasury will never deliver everything everyone wants and will always be the fall guy for whatever a particular group is unhappy about. But a reformed and improved Treasury rather than breaking it up is the best way forward.