David Gauke is a former Justice Secretary and was an independent candidate in South-West Hertfordshire at the 2019 general election.
No 10 North will take over responsibility for economic growth from the Treasury, as part of what the Prime Minister described as “a huge transfer of power out of Whitehall”.
At least, that is what The Times reported on 19 August after Andy Burnham was interviewed by Patrick Maguire. In the course of the interview, Burnham raised concerns about the Treasury’s “dual role” in both promoting economic growth and controlling the public finances, and that this “sometimes clouds that growth mission”. Instead, No 10 will lead on this which means that, according to Burnham, “you’ve got the maximum power to unlock the blockages where they exist in the wider Whitehall system”.
This is big news.
Admittedly, it is not a topic likely to be dominating conversations across the country but for anyone with a passing interest in how our country is administered, this is a radical proposal. One has to go back to 1964 – and the establishment of the Department of Economic Affairs under Harold Wilson – to find an example of something quite so radical in terms of machinery of government changes.
Before turning to the substance of the idea, it is worth noting that if such a reform is to be undertaken, one would not expect it to be dropped into an interview with no details and then for there to be no follow-up immediately afterwards. We are now nearly two weeks on from the interview, and yet nothing more has been said. It was not exactly a throw-away line – and we know that the idea is consistent with what Burnham has previously commented – but this is a remarkably informal approach to something quite so significant. The Prime Minister tells us that the Chancellor is fine with it, but we have not heard anything from him on the topic. It is a curious way to make such a change.
More importantly, however, is the substance. Does the Treasury fail to deliver on economic growth, and would its functions be better served by being performed by No 10 and, in particular, No 10 North?
It is true to say that, in many countries, the roles of finance ministry (raising revenue and controlling spending) is separate from that of economics ministry (with responsibility for economic growth). It is perhaps inevitable, therefore, that from time to time someone pushes the idea of splitting the functions, as happened in the 1960s.
It is a proposal that is usually made by those who think that the Treasury is too much of a bean-counter and insufficiently aware of the bigger picture and the need to grow the economy. What usually provokes the critics ire is that the Treasury has stood in the way of a spending proposal (or, occasionally, a tax cut proposal) that they believe will increase growth. Therefore, the critique goes, the Treasury is anti-growth.
This should already be ringing alarm bells. Proponents of spending, especially spending departments or regional politicians, will always argue that additional spending in their area will help the economy as a whole to grow but that does not mean it is true. Even if it does help the economy grow, it is necessary to take into account the detrimental impact of higher borrowing or higher taxes needed to fund the spending, at least in the short term. This requires someone in the centre to control spending and have the ability to say no. Facing up to those trade-offs is not anti-growth.
Even if we think that the Treasury can be too short-termist in how it controls public spending, the proposed transfer of powers to No 10 North does not address this specific issue. Controlling public spending under the Burnham plans will remain with the Treasury.
Does the role of being a finance ministry distract the Treasury from being an economics ministry? When it comes to tax policy, I think the opposite is true. Stripping the Treasury of its growth responsibilities would reduce its interest in delivering growth-friendly tax policies and it would overwhelmingly focus on bringing in the revenue.
Policy could – of course – be more growth orientated, but that is generally not a failure on the part of the Treasury as an institution but the consequence of political pressures to prioritise other objectives. To take another example, the Treasury – as a growth department – has long pressed for planning reform. In contrast, No 10 has generally been reluctant to support it, largely because it is more exposed to the political difficulties. There is no reason to think this would change for the better if No 10 led on the matter.
The Treasury – even if reduced to just a finance ministry – will still be the most powerful department. But the challenge for government should be how to make the most powerful department more focused on economic growth, not less. If one wanted to slim down the Treasury, I can see an argument for more of the day-to-day spending responsibilities being shifted to a beefed-up Prime Minister’s Department, enabling the Treasury to focus more strategically on economic growth (an idea to which I may return), but distancing it from the growth objective would be a retrograde step.
Then there are the practical issues about moving the responsibilities to No 10 North. There is a case for greater devolution, but that is not what we are talking about here. This is about shifting central functions out of London which means establishing a new office, recruiting a new team of civil servants (from those prepared to uproot themselves and their families to Manchester), operating miles away from the rest of government, and getting very little face-to-face access to ministers (the Prime Minister might be there one day a week, at best). Forgive the scepticism, but for all the goodwill this project has, this is a difficult context in which to drive forward a dynamic pro-growth agenda, especially as the Treasury will have been distanced from the matter.
There is a further factor which should be a cause for concern if one believes that higher levels of economic growth should be a priority – and that is the Prime Minister himself. If one reads his 2024 book Head North (co-written with Steve Rotherham, the metro mayor of Liverpool), what comes across is not a burning desire to grow the economy, but to reduce regional inequality. Fair enough, some might say, but there are times where there are trade-offs between the two objectives. The Treasury’s insistence on considering the economic costs and benefits of spending proposals (the horror!) is repeatedly criticised. There appears to be less need for such rigour in Burnham’s ideal world.
No 10 North would inevitably reflect the instincts of its founder. I fear it would be statist, prioritising reducing regional inequality over aggregate growth, and it would be suspicious of technological innovation if this resulted in job losses. It would tend towards nostalgic romanticism over hard-headed realities and would want to please people rather than confront tough choices. These are not the characteristics needed to get the economy growing.
At some point, we will get the details of these reforms and learn exactly what the Prime Minister has in mind. But removing the growth functions from the Treasury would be a big mistake.