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Cutting the deficit and reforming the public services in the years ahead will “test the Treasury to its core”, according to research published by Demos, the think-tank.
Change will be required if the Treasury is to manage the economy and public spending effectively, says the research based on interviews with former officials and ministers.
The Treasury was hamstrung by a tendency to value youth over experience and to promote a “cult of the generalist” which “not only erodes institutional memory but also leads to accusations of arrogance”.
The report, authored by Kitty Ussher, the Demos director and twice a Treasury minister, calls for significant structural and cultural changes to the department and concludes that the “coalition’s success depends on whether the Treasury can deliver”.
Ms Ussher said: “The Treasury is often seen as untouchable. So it is not routinely challenged to have the right policies in place to make policymaking as effective as possible.”
At a conference on Tuesday, Sir Nicholas Macpherson, permanent secretary to the Treasury, will concede that some of the recommendations have merit, while rejecting many others.
He will say the Treasury has gained greater credibility over the past year as demonstrated by its ability to deliver two Budgets, a spending review and immediate cuts as well as establishing the Office for Budget Responsibility to produce official forecasts.
Sir Nicholas told the Financial Times that last year’s spending review was an example of the effectiveness of the Treasury. “From a policy perspective, it has increased market confidence in the UK economy. Institutionally, it was the product of a strong working relationship with a new ministerial team, following only the second political transition in 30 years, and of close interdepartmental co-operation.”
The report makes several recommendations, the most important of which, said Ms Ussher, were efforts to improve the accountability of the Treasury so it cannot ride roughshod over the rest of Whitehall so easily.
The report suggests the Lords scrutinise the annual finance bill, there should be a select committee on taxation and the government should establish a parliamentary budget office “to provide rigorous independent analysis to parliament on topical matters relating to economic policy”.
It is also recommended that responsibility for financial services regulation and competitiveness move to the Department for Business, Innovation and Skills because the Treasury finds it hard to decide whether it is the department to promote or to police the sector.
Many officials outside the business department interviewed for the report, however, feared giving greater responsibility for financial services to BIS. One senior official told the authors: “We have a pretty low view of BIS.” A former senior Treasury official said: “The problem with BIS is that they are no good.”
Sir Nicholas will say it would be wrong to strip the Treasury of responsibility for financial services at a time when they cannot be separated from the wider health of the economy.