Osborne plans revamp of Treasury

A Conservative government would radically restructure the “rather dysfunctional” Treasury, George Osborne, shadow chancellor, has said.

It would scale back the department’s Whitehall empire and shake up its much criticised policymaking function, he said.

In an interview with the Financial Times, Mr Osborne set out plans to refocus the Treasury on its original function of holding other departments’ spending to account. As chancellor, Mr Osborne said, he would seek to change the “squash every department” approach to micro-managing the rest of Whitehall that the Treasury had adopted under Gordon Brown’s decade-long chancellorship.

The shake-up of the Treasury will form a core element of the Conservatives’ preparations for government, which are drawing on discussions with former mandarins and ministers. Mr Osborne claimed senior former civil servants shared his view of the damage wreaked on the Treasury by Mr Brown’s use of it, when chancellor, as an “imperial power base” from which to challenge Tony Blair’s authority.

A decade of operating as a principal lever in the Brown-Blair power struggle “meant that the Treasury itself became a rather dysfunctional organisation”, Mr Osborne asserted.

“Having spoken to a lot of former Treasury civil servants, many of whom worked under the Brown regime, that’s their assessment too,” Mr Osborne said.

The Tories are looking seriously at reversing one of Mr Brown’s biggest Whitehall changes by shifting the multi-billion-pound administration of tax credits and child benefit out of Revenue & Customs, which is part of the Treasury’s empire.

“There is a strong argument for removing the delivery function of tax credits, child benefit and child trust funds, and putting them with the Department for Work and Pensions,” Mr Osborne said. He argued that Mr Brown’s conversion of the Treasury into “one of the largest spending departments in Whitehall” – through its administration of tax credits – had robbed it of its status as “the one department making sure money is well spent across Whitehall”.

The serious problems that have beset tax credits – including under- and over-claiming of credits, fraud and error amounting to billions of pounds – stem in part from the Treasury’s lack of experience of dealing with people on low incomes, he stated. “The DWP is better than the HMRC at understanding the pressures [on claimants] involved...I don’t think HMRC are used to people who can run out of money on a weekly basis.”

Mr Osborne also criticised the extension of the Treasury’s empire into the oversight of policy across the domestic arena, saying the department had “lost sight of its core responsibilities, which are the stability of the economy and also value for taxpayers’ money”.

The department’s “very thin” capability on financial markets had been exposed by the Northern Rock crisis, as well as the broader issues thrown up by the credit crunch, he added.

This problem arose “partly because a lot of the brightest and best people that have been in the Treasury have been pushed in the domestic policy areas,” Mr Osborne said.

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