To save Britain, Burnham must take on the Treasury
In the last decade, Britain has been ruled by five prime ministers. All of them failed because none of them got to grips with public sector mismanagement. While mayor of Greater Manchester, Andy Burnham experienced the frustration of trying to manage a region while shackled to Whitehall. Fixing the problem depends upon making a start on four distinct reforms.
Whitehall directly tries to control too many aspects of our economy. Within Whitehall, that power of control is excessively concentrated in one ministry: the Treasury. That degree of power concentration is entirely exceptional: it is not found in any other high-income democracy. Manifestly, power needs to be shifted down to lower levels of authority. The guiding principle is subsidiarity: the management of each objective should be devolved to the lowest level of government at which it is feasible: as Andy Burnham saw, a bus service for Manchester is better planned there rather than in London.
Research on international comparisons of performance suggests that an area with a population of between three and eight million is the right span of control for many decisions on economic policy. The Nordics, Baltics and Germany’s 16 regions are all in this range. Britain’s Mayor-led City-Region-Authorities, (CRAs), like the Manchester Region are at the small end of this range. But they are good enough: neighbouring Mayors have learnt to cooperate. For years, Andy Burnham cooperated with Liverpool’s Mayor, Steve Rotherham, and the West Midlands Mayor, Andy Street. In contrast to the CRAs, Whitehall’s attempt to micromanage the whole of England, a huge and diverse area with a population of 60 million, is clearly too large to succeed.
Currently, 80 per cent of public spending is made directly by Whitehall: this is far too high. To put this in perspective, in Germany, only 30 per cent of spending is made directly from Berlin. One of the fruits of this structure is that there is far less regional inequality that Britain.
In Whitehall, and especially the Treasury, most recruits come directly from graduate courses in a narrow range of subjects and universities – disproportionately Economics and Law at Oxbridge. They lack the experience and skills needed to handle even the reduced role they should be playing.
In local government, the problem is quite different, but no less severe. Local government staff are ill-paid, face a torrent of Statutory Duties mandated by Whitehall ministries, and spend much of their time bidding for one of other of the 140 small pots of short-term funds that Whitehall micromanages. Such jobs seldom attract people of the calibre needed for a well-functioning local authority.
A recent vignette of bureaucratic disfunction is the problem of potholes. In the annual Treasury scramble to finance the budget without upsetting powerful lobbies, maintenance of the road network infrastructure often loses: Britain’s share of public spending devoted to infrastructure is the lowest of any comparable high-income country. Under Keir Starmer’s Government the road budget was squeezed, but as roads gradually deteriorated, voters started to complain. So in April, the minister of transport announced a new Pothole Pot for which Local Governments could bid. The upshot is that the bureaucratic cost of these remedial potholes vastly outweighs the precautionary cost of reasonable road maintenance.
The composition of recruits needs to change. The pattern of recruitment into the Treasury contrasts with ministries of finance in all other high-income countries. For example, the French civil service recruits mid-career staff from the private sector, and its direct intake from universities is predominantly from specialist Grandes Ecoles which teach a specialist skill like transport infrastructure.
Once recruited into the Treasury, after a few years many staff transfer to other Ministries and thereafter frequently move between them to gain promotions. This weakens the accumulation of specialist skill. Another vignette is the collection of tax on North Sea oil and gas. The Treasury’s tax regime has been chaotic and fidgety, being changed 25 times in 50 years. Yet per barrel, it raises far less tax than Norway, which shares the same resource. One of the causes is the amateurish efforts of the Treasury’s young staff, repeatedly tasked during a budget panic to raise more revenue from oil. In contrast, Norway has built a highly skilled team of just 40 staff, recruited with deep knowledge of the industry, and paid well enough to stay in their jobs.[1]
Conversely, English local government at all levels has neither powers nor money. Not only is 80 per cent of public spending made directly by Whitehall’s ministries, but even half of the little spending that is channelled through local government is micro-managed by the Treasury through Statutory Obligations. As their new Obligations mount, while their budgets face repeated cuts, local authorities have been become the primary fall-guys: accused by the Treasury of the incompetence supposedly explaining unachieved goals.
Think of a local government team on the receiving end of this treatment. It would hardly be surprising if local authorities struggled to attract top talent for either staff or political positions.
Everything about the Treasury’s approach is wrong. South Yorkshire, once prosperous but now a very poor region, needs to develop a medium-term strategy for its renewal. Such regionally designed renewals are entirely feasible, as demonstrated around Europe and North America. But they are rare in England because Treasury policy is antipathetical. Projects should not be assessed individually as the Treasury insists on doing, but as parts of an integrated, coherent strategy embracing an entire eco-system conducive to renewal. Such a strategy would include risk-bearing finance for the region’s firms-of-the-future, training programmes for the skills-of-the-future which those firms would need, and all the mentoring and professional service firms normal in thriving places but which wither away once decline sets in. It can’t happen in England because the CRAs are largely impotent.
The Treasury micromanages local government projects because it doesn’t trust the capacity of their staff to spend money effectively. These fears are often well-placed, but they are self-fulfilling. The task of working in local government is disheartening; there is no point in developing the skills needed for renewal, because they cannot be implemented. Meanwhile, the juggling skills required by the Treasury would be pointless in an environment conducive to renewal.
To deflect criticism of London dominance, the Treasury sent a few of its staff to a satellite in Darlington, opened in August 2021. This is regarded as a success because staff there are reported to have become more sympathetic to the ministry of communities. But to state the obvious, since the staff in that satellite are performing the same function as when they were physically in London, this token dispersion of people does not reduce the excessive concentration of power.
The Treasury behaves like this because it is convinced that local authorities waste money. Yet we know that English local government can work, because in Andy Burnham’s Manchester it already is working. As he generously acknowledges, the architect of this achievement was Howard Bernstein, who joined Manchester local government aged 16 as a tea-boy. Turning out to be brilliant, he rose to become the city’s chief executive, learning about local firms, and building teams and datasets about the region’s economy superior to anything known by Whitehall.
While Mayor, Andy Burnham’s notable, albeit modest, achievement was to improve bus services. He fought the Treasury to win even that degree of control. The Treasury was willing to do so only because they trusted a quango to supervise his decisions. That quango was Transport for London: Treasury staff ride on it daily. But the idea that Manchester’s bus system should be supervised by the bus agency for London reinforces the sense that Whitehall runs a two-tier system of privilege for its home base and disdain for the regions. That bias has to be faced down.
The Treasury’s self-conscious culture of elitism, supported by its highly skewed recruitment of clever young Oxbridge graduates, leads to arrogance and over-confidence. Here’s a vignette: Jonathan Slater, a retired Permanent Secretary, is a highly credible whistle-blower. He diagnosed Whitehall’s problem as a complete disconnect from context-based practitioner knowledge, compounded by rapid turnover and social arrogance. Slater had grown up in the South of England, been to a ‘good’ private school, and gone to a ‘good’ university: he clearly rose to the top echelon of Whitehall. If he’s an outsider, heaven help the rest of us.
The scale of the damage caused by letting this monastic little world run the country is illustrated by another insightful vignette. Kate Bingham was recruited to address the COVID epidemic. Her arrival was due to the initiative of Patrick Vallance, the Government’s Chief Scientific Officer. The very position of Chief Scientific Officer is indicative of Whitehall’s paranoid fear of outsiders. Vallance, like all such recruits, was appointed for a mere 3-year term and had no power beyond that of offering advice. Kate Bingham was a health-sector venture capitalist. She saw at once that the vital step was to commit to large purchases of any vaccine research that met a modest threshold of promise. Viewed retrospectively, much of this money would be ‘wasted’ on ideas that had not fulfilled early promise. This alone would have killed Treasury funding had its staff not been overruled by top level political support.
It sounds harsh but we need to radically reduce Whitehall staffing. Some could be shifted to local authorities, but others should simply by made redundant. There is much excess capacity because so many of its current functions would be better done by local government or civil society – the underused potential of which is extolled by the brilliant Indian economist Ragu Rajan in The Third Pillar.
Uniquely among high-income countries, nearly all of the money allocated by the Treasury to other Ministries and Local Authorities is granted with a very short time horizon – typically the end of the current fiscal year by which it must be spent. Any money not supported by a receipted expense by 31 March is automatically reclaimed by the Treasury. Compounding this, the Treasury only sets its budget in the Autumn – in 2025 not until November. Until then, the allocation to other Ministries and Local Authorities remained uncertain.
Because funding for all public agencies is short-term, nowhere in the entire public sector has any capacity been developed for longer-term planning. We need to build it, but the Treasury’s lack of pertinent skills and ingrained cultural traits make it incapable of doing so.
We need what every other high-income country in Europe and North America has had for decades: an Economics Ministry. Our Treasury is merely a Budget Ministry, and not even good at that. The proposal is sometimes described as ‘Splitting the Treasury’. I think a better analogue is of growing an organisation from scratch. Britain is fortunate that we abound in talented, public-spirited people, and at times of crisis we have repeatedly succeeded in building new institutions fast.
In 1916 with the First World War going badly, the Cabinet Office was founded with a handful of recuits under the inspiring leadership of Lloyd George: it now has around 10,000. In 1940, with the Second World War going badly, we built the War Office, under Churchill, followed, as victory approached, by the astounding success of the Beveridge Report in meeting social needs. More recently, most of the City-Region Authorities had to be built from scratch. This will be unfinished work by the 2029 election. But with Burnham’s leadership, and a good Minister speaking up for the future, it will offer credible hope of national renewal. No longer will annual budget pressures sacrifice the future to buy-off the latest noisy lobby.
Britain’s dysfunctional public sector management can be traced to in four damaging features. Our system is far too highly centralised in Whitehall, and within it, the Treasury. This has been compounded by the astonishing lack of appropriate skills in both central and local government. That combination alone would be a killer, but the misfunction has been deepened by a culture of elitism and over-confidence in Whitehall and especially in the Treasury. To cap it all, since the Treasury is fixated with its core task of scrambling to square the annual budget, its psychology is debilitatingly on the short-term.
Each of these weaknesses can be remedied, but Whitehall cannot be trusted to reform itself. Power needs to be devolved to lower levels of government, guided by subsidiarity. Recruitment into both Whitehall and Local Government needs to be overhauled to attract people with pertinent skills and experience. To break the culture of elitism and over-confidence which pervades Whitehall, there is nothing for it but to dismiss many of the staff performing functions better done elsewhere. Finally, to break the culture of short-termism, the crucial remedy is to adopt what every other high-income democracy already has: demote the Treasury into the Budget Ministry it really is, and counter its short-termism by beginning the task of building an Economics Ministry.
Even in combination, these four remedies will leave us facing the alarming legacy of past decades of misgovernance. But Britain still has many strengths. If voters grasp why not only Starmer but his predecessors from May, to Johnson, to Truss, to Sunak were doomed to fail, and what can now be done about it, we can have credible hope that our children will inherit a better future not the bitter one many currently fear.
[1] I would like to thank Philip Daniel, formerly Deputy Director of the Fiscal Dept, IMF, and Keith Myers, a top specialist in oil discovery and taxation, for their insights.