How Dave and George can avoid a terrible rift

Andrew Tyrie says that root-and-branch reform of the Treasury will be needed when Brown is gone, including weekly minuted meetings. Past friendship is not enough The Treasury will be the engine room of David Cameron’s government. It will have to be, given the ghastly economic inheritance. But the economy will be only one of the incoming Chancellor’s headaches — his department will be in no fit state to do the leading.

The Treasury — once the citadel of highquality policy advice and the driving force behind the economic and financial reforms which revived Britain in the 1980s — now lies prostrate. It is a casualty of Gordon Brown’s personality, ten years of trench warfare between him and Tony Blair and the appointment of a new Chancellor, broken backed on arrival.

This financial crisis has brutally exposed some of this. With each twist over the past year the Treasury has often seemed, by turns, rudderless and indecisive. So when the Conservative team arrives at Great George Street it will not just be a damaged economy that needs repairing and revitalising but the policy machine itself. There is probably little or nothing wrong with the officials, just the way they have been led by politicians.

Morale is low. ‘Riddled with cronyism and sycophancy’, ‘a shadow of its former self’, ‘all but broken as a source of serious policy advice’, ‘totally demoralised’. These are not my views but those of a number of former senior civil servants with whom I have spoken. Exaggeration perhaps? They cannot all be cynical or chippy pensioners.

On Day One officials will want to know, and we should tell them, three things: what the Treasury is henceforth to be for, what its main priorities are going to be, and how ministers expect officials to tackle them.

We can tell them that the Treasury should return to its core role: the provision of high quality advice on the central economic and financial public-sector priorities of the government. It certainly should not be a core role of the Treasury to be administering a large part of the welfare state, which it now does through the tax credit system. Nor should the Treasury be engaged in micro-management of the wealth-creating sectors with a myriad of complicated tax incentives and public expenditure sweeteners.

The government’s and the Treasury’s overriding priority will be restoring the public finances and, in particular, bringing some control back to public spending. After a couple of years in office — as soon as he dared — Gordon Brown led Whitehall on a spending spree. Ludicrously, so much money was thrown at a number of departments that they were unable to get rid of it all in the time allotted to them. Conservatives will need to restore a culture of thrift. Public expenditure control will be a remorseless and thankless task. The Chancellor and the Prime Minister will need to be hand-in-glove on it.

Shock therapy may be needed, along with Star Chambers, zero-based budgeting, control and hopefully a cull of quangos. But it will be essential for the Cabinet, right at the start, to agree the overall spending envelope, recognising the scale of the challenge on restoring the public finances.

Signalling that the Conservatives will give Cabinet and a Star Chamber responsibility on spending will contrast markedly with the Blair–Brown era. Gordon Brown’s ukase style of spending priority allocation has done enormous damage. For most of the past decade all sense of partnership and meaningful consultation between the Treasury and the spending departments was eliminated. Settlement letters were fait accomplis. This was no way to get the best out of spending departments.

They need to be allowed to get on with their proper job of using limited resources wisely. All the meddling by Number 10 needs to end. The Treasury should provide the envelope: the department should mostly choose, and be judged by its choice of tools. Labour ministers’ misuse of targets should also be reviewed at an early stage and their number reduced.

Conservatives will need to restore the first principle of any sensible tax policy: maximise the yield with minimum of distortion and complication. No government should imagine that endless tweaking and hence distortion of the tax system can deliver better economic performance. It usually makes things worse. Public spending should be the primary tool to get help to those that need it in society and to meet the government’s wider social objectives, not tax wheezes.

George Osborne and David Cameron get on. That will be a huge step forward for Downing Street relations, compared to the last 11 years. But don’t trust to luck — or past friendships — for it to last. A weekly meeting is needed between Chancellor and Prime Minister with an agenda and a private secretary present. Whatever the good intentions in opposition, conflicts of institutional interest can drive a wedge between Prime Minister and Chancellor. These structures are best put in place from the start.

For just under five years I was an adviser in the Treasury. I knew my place. As Jack Straw recently put it, drawing on his own experience as an adviser a decade earlier, ‘basically you had to keep your head down’.

That was before Blair–Brown. Labour’s huge phalanx of advisers — more than twice the number the Conservatives appointed at their peak — have climbed out of their boxes. They have been taking on roles which should be properly performed by ministers (public speaking, holding executive meetings with officials and de facto directing them, representing Britain abroad at meetings etc). All that has to end. David Cameron should make it clear that he will be approving each appointment and that misbehaviour will lead to instant dismissal. We also need fewer advisers. A Conservative government will thereby probably get better advice, with less mischief from the sidelines, and save some money as well.

It’s back to year zero on the fiscal anchors. We should to be pretty blunt about the legacy. After so many Brown-inspired fiddles to them, the so-called fiscal rules will have to be jettisoned. They are currently providing a credibility deficit. And their replacement? Over a decade ago I argued for an independent fiscal committee to give some market credibility to the definitions in the public accounts. Worth a try.

And then there will be Labour’s policy legacy on financial stability. It was clear from the start that Labour’s Tripartite Committee arrangements were flawed. They left power and responsibility divided, without a single figure unequivocally in charge and carrying the can during a crisis. The government’s proposals to rescue the situation, basically asking a reformed Court of the Bank of England to play a bigger role, could well turn out to be a mouse. This is partly because the proposals do not remove that central flaw of existing arrangements.

Some of the above proposals will restore morale. Treasury civil servants (and the rest of Whitehall) need much clearer lines of responsibility. They need to feel that they are part of the policy-making process, that they have reasonable access to ministers who will listen, and that they will not have their views ‘reinterpreted’ or even jettisoned on the way up the reporting chain by special advisers. Conservatives also need to talk more about the public service ethos which they wish to restore. Once the mandarins realise that these new ministers mean it, they will fall over themselves to help. The door will be open not just to mend the Treasury, but to clear up the debris on the economy as well.

Andrew Tyrie is a former adviser to successive Chancellors of the Exchequer, a former shadow paymaster-general and MP for Chichester since 1997.