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Chancellor Alistair Darling at No.11 Downing Street. London, Britain - 12 Mar 2008

Back in September, the Treasury lost an ally. Or rather, it lost a whole committee of allies. The Prime Minister scrapped the Business Advisory Group, doing away with a voice in Downing Street that tended to agree with the Chancellor.

It was an interesting step to take, following on as it did from May’s transposition of much of her Home Office team into Number 10 and the decision to make economic matters a key focus of her premiership. The Treasury’s wings were being clipped.

This week brought another reverse for the Treasury’s power. The abolition of the Autumn Statement cuts the number of major fiscal events in half. While there will still be a Spring Statement, its function will be to respond to the OBR’s forecasts, not to dominate the news agenda for weeks. The Chancellor and his officials will still control Britain’s fiscal policy, but their opportunities to change it – and, by extension, to win media coverage and electoral approval – will inevitably be reduced.

This wasn’t forced on Philip Hammond; he evidently thought it right to make the change, and he was correct to do so. The Statement had grown into a second Budget, adding uncertainty into the markets and at its worst encouraging Chancellors to invent policies simply in order to fill the space and appear busy. Gordon Brown went years ago, but his endless tinkering lived on due in part to the structure of how fiscal policy was made and announced.

The move may be Hammond’s choice, but it will reduce his influence nonetheless. The Budget, now rescheduled to the Autumn, will become even more important due to its newfound rarity but it won’t double in importance.

It is, inevitably, the Prime Minister who will gain influence as the Treasury’s wanes. Small wonder that she agreed with the proposal in the “detailed discussion” the Chancellor mentioned in his speech on Wednesday.

This shift of power now looks like a pattern: the remodelling of how the British Government works. It has traditionally proved difficult to rein in the power of the Treasury – not least because many Prime Ministers either haven’t felt its pressure when running a department and thus haven’t come to resent it, or have secured their premiership by striking a deal with their Chancellor, or have enjoyed exerting its power as Chancellor in the past themselves.

David Cameron and Tony Blair never held any office aside from Prime Minister, and rose to power by agreeing to given their Chancellors major roles in running the country. Gordon Brown and John Major had both been Chancellors of the Exchequer before getting the top job. One has to go back to Thatcher to find a Prime Minister who had previously held a Cabinet post without serving as Chancellor. For more than 25 years, the growing power of Number 11 has been accepted by the occupant of Number 10 as the price of power.

Now we have a very different situation. Not only does May understand how irritating the Treasury can be for someone trying to run a spending department, but Hammond does too. He said as much in the Autumn Statement:

“Having run two large spending departments in previous roles, I came to this job with some very clear views about the relationship between the Treasury and spending departments. I want departments to be incentivised to drive efficiencies. And I want the Treasury to be an enabler for good, effective spending across government.”

That’s certainly a jab at his predecessor, but it’s also rather more than that. It also suggests that he is a rare beast – a Chancellor willing to tone down and trim back the clout of his own department.

27 comments for: The Treasury is losing influence – and the Chancellor is content for it to happen

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