Budget 2020: the structure of government has changed but the hard economic choices have not

As Rishi Sunak prepares for his first Budget next week, much has been made of the apparent No 10 takeover of the Treasury, following Sajid Javid’s resignation as chancellor over the prime minister’s demand he sack his advisers.

Tension between Nos 10 and 11 has a long history, of course: think of Margaret Thatcher and Nigel Lawson; and the Treasury is full of tales of how bad relations were when Tony Blair and Gordon Brown were neighbours. Allegedly the first indication Blair would get about what was in his government’s Budgets would come the day before they were delivered, when his principal private secretary would be invited over to the Treasury. Ed Balls, then Brown’s chief economic adviser, would only at that point allow him a quick glimpse of the fabled Budget spreadsheet.

The current prime minister seems determined not to let this happen, taking control of the Treasury by imposing a joint team of advisers on his new chancellor. Centralised power has obvious appeal, but it is not without risks. More importantly, whatever the institutional setup, there is no escaping two simple truths: that there are no easy answers to the deep structural challenges facing the UK economy; and that you cannot avoid the fundamental trade-offs involved in economic policymaking.

In many ways tension between the two buildings is inevitable. Partly this stems from personality: prime ministers and chancellors tend to be highly ambitious individuals with strong views, and are often political rivals. Partly it is institutional: prime ministers usually—often for good policy and political reasons—want to spend money, while the Treasury sees its job as ensuring the sustainability of the public finances and that taxpayers’ money is spent responsibly.

The prime minister’s desire to seek a closer working relationship is understandable. The chancellor has at his disposal well over 1,000 Treasury officials to work up his ideas; the PM has just a couple of dozen. So No 10 is always largely reliant on the Treasury to work up tax and spending proposals, which means that when the prime minister and chancellor don’t agree, the latter has a major institutional advantage. From the Treasury’s perspective, a more joined up approach also has its advantages: Whitehall departments should no longer be able to go above its head to No 10 in the same way.

A close relationship between the two buildings can clearly work, as David Cameron and George Osborne showed. It relied on a close personal bond and a shared view of economic and fiscal policy. But it was also a marriage of equals, with the two having grown up together in politics and their teams having worked closely together for years in opposition. That is quite different from a new chancellor being told on appointment by a sitting prime minister that he would not have complete control over his team.

No 10 wanting more control also comes with potential pitfalls. First, you risk losing an important challenge function that exists between the two buildings, with No10 constantly pushing forward new spending ideas and the Treasury treating them all with a dose of scepticism, often resulting in sensible compromise. Secondly, the prime minister is now more directly in the firing line when things go wrong. Chancellors have often been lightning rods for political criticism, providing at least some shelter to their prime ministers: think of Norman Lamont and the ERM; George Osborne and the pasty tax; or Philip Hammond and the national insurance rise on the self-employed. If the PM is seen to have taken control of the Treasury, he and his advisers are likely to take more political blame if, for example, a Budget unravels or the economy enters a recession.

More broadly, creating a new unit does not mean there is suddenly some silver bullet to solve the challenges facing the UK economy. A view seems to have taken hold that there is some easy solution to Britain’s economic problems if only those wretched Treasury officials would stop being so miserly. While it is undoubtedly true that the Treasury can be too conservative in some of its thinking, and on occasion too slow to embrace new ideas, the reality is there are no quick fixes to tackling low productivity, reducing regional inequality or decarbonising the economy. Complex issues require complex solutions, and can take years to progress. No number of institutional changes to the dynamic between Nos 10 and 11 will change that.

Nor will they make the key trade-offs that Treasury officials draw to the attention of their political masters suddenly disappear: if you want to spend more money, you either need to raise tax, increase borrowing or cut spending elsewhere; if you want tighter controls on immigration, this will impact your ability to deliver a big increase in infrastructure spending; and if you want a looser relationship with the European Union, for completely understandable and legitimate reasons, this is likely to have a negative impact on the economy and the public finances, with all the consequences that brings.

In short, no amount of shifting around the institutional dynamic between No 10 and the Treasury will alter one fundamental fact: to govern is to choose. Next week’s Budget is likely to offer a clear reminder of that.

 

Tim Pitt is a former senior Treasury adviser to Sajid Javid and Philip Hammond. He is a partner at Flint Global and is writing in a personal capacity