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The overreaching Treasury needs reining in

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LGC’s essential daily briefing

Councils are used to being subject to a high degree of scrutiny, whether by formal committees, ministers, government departments, MPs or local residents. By and large they are comfortable with the need to be accountable. According to Lord Kerslake’s review of the Treasury, published this week, the same cannot be said of what has arguably been the most powerful government department of recent times.

The review, commissioned by the Labour party last year, finds the Treasury has an “arrogant, overbearing and negative attitude to other departments” and does not take kindly to scrutiny. In addition it has lost the public’s trust following its doomsday predictions in the run-up to the EU referendum.

Speaking at the report launch on Monday, Lord Kerslake said the Treasury’s economic warnings had “simply not been believed” as it got caught up in the “political bun-fight”. As a former permanent secretary at the Department for Communities & Local Government, Lord Kerslake has no doubt had plenty of run-ins of his own with the folk at Horse Guards Parade.

The review panel, which included former Birmingham City Council chief Stephen Hughes and Trades Union Congress chief executive Frances O’Grady, found the Treasury had seriously overreached in recent years, with its position as controller of the public purse giving it de facto control over government policy. Lord Kerslake said the Treasury had acted as an “arbiter and sometimes initiator of policy” and said evidence to the review was that discussions with government departments were only serious if there was a Treasury official in the room. That certainly chimes with reports LGC has heard from the many council leaders and chiefs who have been involved in devolution negotiations over the past couple of years.

On devolution the panel was unequivocal: without fiscal devolution the deals done to date amount to little more than centralisation. They have called for the Department for Business, Energy and Industrial Strategy to be handed responsibility for the agenda, arguing the Treasury has had its chance to address long-standing structural inequalities in the UK economy and not only failed to treat the problem, but failed to even fully understand it. Since 2010, its myopic focus on reducing public spending has resulted in a missed opportunity to address these imbalances by taking advantage of low interest rates, the review said.

More technically, but no less important, the review also called on the department to put its financial responsibilities on the same footing as its economic ones. At present, the review said, the Treasury was run by “professional economists playing at being amateur accountants”. As a result, although it successfully managed departmental budgets, the Treasury did not always achieve value for money.

However, despite these concerns, the review stops short of recommending a formal separation of the Treasury’s two functions, as happens in other countries such as Germany, arguing it would be too disruptive. Instead it proposes a new group structure which would put economics and financial control on an equal footing. Speaking at the launch of the report, shadow chancellor John McDonnell suggested he would be more inclined to split the department were his party to form the next government.

That eventuality seems a long way off, to put it mildly. Of course individual chancellors have great influence over how their department operates; so far Philip Hammond appears to have less of a reach than his predecessor, but this may just be down to the inertia Brexit has cast over policy development. If the government is serious about rebalancing the economy it would do well to take note of Lord Kerslake’s excellent diagnosis and prescribe some treatment urgently.

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