Can Andy Burnham tame the power of the Treasury to boost growth?

PM wants to reduce department’s stranglehold on public purse and bring long-term thinking to economic policy

Andy Burnham is far from the first prime minister to dream of taming the power of the mighty Treasury.

Boris Johnson all but forced the resignation of Sajid Javid by handpicking his team; Margaret Thatcher favoured her economic adviser Alan Walters over Nigel Lawson, prompting the latter’s furious resignation; and Tony Blair and Gordon Brown’s power struggle was the stuff of Whitehall legend.

Burnham’s approach harks further back still to Labour prime minister Harold Wilson’s Department for Economic Affairs (DEA), a short-lived attempt to bring long-term thinking to British economic policymaking.

The PM made the historical analogy as he gave fresh details this week of his plan to take control of growth policy from the Treasury and hand it to a new No 10 department in Manchester .

The DEA was responsible for drawing up a national plan for the economy, which began with the timeless exhortation: “We must pay our way in the world and produce more wealth inside this country.”

The baleful influence of the Treasury, with its stranglehold over the public finances, has long been lamented by leftwingers, who accuse it of short-term thinking and ingrained, institutional caution.

“The dual job of growth and control of the public finances sometimes clouds the growth mission,” Burnham told the Times. “Having No 10 leading on that growth mission means you’ve got maximum power to unlock the blockages where they exist in the Whitehall system.”

Some of the most criticised decisions of Keir Starmer’s tenure were seen by many Labour MPs as resulting from this “Treasury brain” – from slashing winter fuel allowance to caving in to City lobbying on a bank windfall tax.

Burnham hopes the new prime minister’s department, overseen by his powerful cabinet ally Louise Haigh , will open the space for some fresh thinking. “The new No 10 North innovation is more significant than people realise,” he said.

Burnham’s route to growth runs through devolution

One of the few detailed policy publications the new cabinet has so far produced was on radical plans for devolution. The PM hopes handing additional powers to metro mayors will help bring together growth policies now scattered across Whitehall.

Ruth Curtice, director of the Resolution Foundation thinktank and a former longtime Treasury official, says coordinating across these different policy areas – housing, education, planning and so on – could be the most effective use of the new Manchester-based unit.

“No one department has all of the levers – the Treasury don’t own all of the levers,” she says. “I would see it as a positive thing that this No 10 says, ‘Given what a priority this is, we’re going to put more force behind it.’”

Former Brown adviser Michael Jacobs, emeritus professor of political economy at the University of Sheffield, draws a comparison with the Office for Climate Change, which helped to coordinate policy across government.

“The really interesting version of this to me would be a new growth unit, drawing on and made up of officials from all the relevant departments.”

Sanjay Raja, chief UK economist at Deutsche Bank, points out that Burnham’s pick for chancellor, John Healey, was instrumental in the creation of regional development agencies, way back in the Blair-Brown era.

These were meant to bring a regional dimension to growth and industrial policy – but were scrapped by the 2010 Conservative-Lib Dem coalition. George Osborne went on to create and empower city region mayors as the focus for devolution.

Given the pair’s joint interest in devolution, Raja argues that far from clipping Healey’s wings, “this is one of the more merged tag teams in No 10 and No 11 that we have seen”.

Treasury power is inescapable

Yet not everyone is convinced that it makes sense to create a policy counterweight to the Treasury. Former Conservative chief secretary to the Treasury David Gauke says the Treasury’s control over tax and spend, which it will maintain under the shake-up, means it is inevitably powerful. “The Treasury is always going to be the most important department.”

Indeed, he suspects stripping growth out of the Treasury’s remit would just exaggerate its tendency to fixate on penny-pinching.

He also questions whether No 10 North can work: “You’re going to have this office, which will get at best a day a week of face-time with the PM, and little access to other ministers – and it will be trying to push the government in a more pro-growth direction.”

A Treasury source stresses that, as the initial government announcement said, No 10 North will focus on “local growth”, and in particular devolution – rather than taking over economic strategy from No 11.

The Treasury has “lent” a small number of staff to the new unit, while its second permanent secretary, Beth Russell, who was instrumental in the creation of the Treasury’s own northern outpost, the Darlington Economic Campus, has been working closely with the Manchester team.

More civil servants are being transferred from other departments, including housing and local government, and former Times journalist Sam Lister has been appointed as No 10 North’s director. However, Whitehall veterans point to the new department’s relatively modest resources thus far.

Jonathan Portes, a former senior government economist and now professor at King’s College London, says the most important question, as Burnham’s new arrangements bed in, will be how the inevitable policy clashes will be resolved.

“What happens when No 10 wants to do something, and Treasury says no – or says, ‘yes, we’ll pay lip service to this but don’t expect any spending to go along with it’?” he says. “That has been the historic response of the Treasury when No 10 has got more powerful.”

Hannah Peaker, deputy chief executive of the New Economics Foundation thinktank, says the priority should be ensuring economic decision-makers – including the Treasury and No 10, but also the Bank of England and the Office for Budget Responsibility – work better together. “While a more devolved approach could help accelerate regional growth, the most important remedy is better coordination between economic institutions so that they are all pulling in the same direction.”

Will No 10 North open the space for more radicalism?

In an article for the progressive Renewal journal earlier this year, Haigh complained of the Treasury that, “faced with the dual mandate of maintaining fiscal control and supporting economic growth, the institution defaults toward caution, prioritising near-term debt dynamics over longer-term economic outcomes”.

In the run-up to Burnham’s bid for power, he appeared to suggest large-scale renationalisation of public utilities and radical tax reform would be on his agenda – alongside the long-promised shake-up of social care.

But some of these ambitious and potentially costly plans are likely to come into sharp conflict with the institutional caution Haigh identified.

With a critical budget fast approaching, the new cabinet – north and south – faces a string of decisions on tax and spend; and other key choices loom, including on how to shape the future of the beleaguered privatised water industry.

In the run-up to the last two Labour budgets, debate was dominated by the immediate challenges for fiscal policy, often played out noisily in public against a backdrop of febrile government bond markets.

Burnham clearly hopes to shape a different debate, both inside and outside government, but the historic precedent he highlighted, in the Wilson era, underlines the difficulties of reining in the Treasury.

Wilson’s temperamental secretary of state for economic affairs, George Brown, moved on after two years, by which time the national plan had been blown way off course.

His role was then downgraded so it was no longer a cabinet position and, by 1969, the experiment with a separate Department for Economic Affairs was over – and its powers had been sucked back into the Treasury.