The Treasury under New Labour

Research Project

The core executive in the UK:

the roles of the Prime Minister and HM Treasury*

Paper prepared for the 5th ECPR General Conference, Potsdam

10-12 September 2009
Panel: the core executive in interministerial coordination

Colin Thain

Senior Visiting Research Fellow, 2009-10

Department of Politics and International Studies
and
Visiting Fellow, All Souls College
University of Oxford
(New affiliation: Department of Political Science and International Studies,
University of Birmingham from 1 October 2009)
c.thain705@btinternet.com

* I am grateful for the views of a large number of current and former Treasury, Cabinet Office, No
10, and Bank of England officials, former Ministers and journalists seen as part of the larger
research project. I am grateful to the ESRC for its research support.

Note: this paper represents thoughts at an evolutionary stage of a research project – I may change
my mind.
www.treasuryproject.org

Research Supported by the ESRC:

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 Thain, The core executive in the UK

Grant Number: RES-062-23-0369

The core executive in the UK: the roles of the Prime Minister and HM Treasury
Abstract

The UK is seen as the exemplar of the Westminster model of strong core executive
action. Central to this is the relationships between the Prime Minister, his/her (usually
his) office, the Cabinet Office and crucially the Chancellor of the Exchequer and his
officials in the Treasury. This paper explores the roles and relationship between
prime minister and chancellor, taking evidence from the past thirty or so years but
focusing particularly on the analysis of key players in the period since 1997. There is
a mis-match between the theory and reality of the so-called strong UK case. A
cyclical pattern can be discerned -for a large part of the late 1990s and 2000s the
core executive was strengthened to become almost a singularity around two key
players, and then fractured in what became in effect dysfunctional government.
Since 2007 there is evidence of some return to business as usual but with the legacy
of lack of effective coordination at the centre and the increasing ‘personalisation’ of
power. What is just as fascinating is the continuation of some form of interministerial
coordination and official coordination despite the fissures at the centre of the system;
a product of the courtier mentality and the disaggregation of policy domains. The
paper also passes comment on the concept of the core executive as it has been
applied in the UK case.

1 Introduction
There is more to public administration and policy than debates over economic
policy and public finance, and any broad ranging analysis of the UK’s core
executive should include discussions about welfare policy, foreign aid, foreign
policy and the environment. This said, by focusing on the Prime Minister and
Chancellor/No 10- Treasury relationship within the UK core executive this paper
reflects a number of realities: economics and finance does often drive policy,
and in the UK case as a result of history, institutional power and the accidents
of politics, the Treasury has a dominant role in key decision-making. The
research upon which the paper is based1 tracks the emergence of a department
with five multiple roles: central department (overseeing pay, conditions and
direction of the public sector), ministry of finance (in charge of taxation,
borrowing and public spending), economics ministry (with oversight of
macroeconomic policy and the conditions and sustainability of growth), policy
actor (engaged in moving policy debates forward), and foreign economic policy
agent (representing the UK on the IMF, EU). Almost all of these roles have
existed in some form since the Treasury was merged with the Exchequer in
1833, or were grafted on following the expansion of the role of the State in the
two world wars. What marks the period from 1997 to 2007, is the energy
exhibited by Chancellor Brown in developing many of these elements and
testing the extent of the Treasury’s reach.

2 Core executive – concept and issues

The power of key political leaders (or political chief executives) has to be set in
context. Despite changes in the political terrain, the core executive performs
five multiple and overlapping tasks:

1
See www.treasuryproject.org for more details of this.

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 Thain, The core executive in the UK

(a)Broad direction of policy

This has three main elements:

(i) Internal domestic: self consciously set as the priority from Blair's
second
term onwards. The aim has been to deliver improved public services and reform
of the public sector. This is made harder by the trends of New Public
Management and a hollowed out state.
(ii) External management. This is relevant still despite the decline of
Britain’s power but it is increasingly constrained by globalisation, the
impact of the EU, transgovernmental agencies such as the G7, IMF, WTO
and by relations with the US. Blair did not avoid the adage that a Prime
Minister is either his own Chancellor or his own Foreign Secretary. Blair's
international profile increased after 9/11, but even before that he was
experimenting with a particular variant of ‘liberal interventionism.’2
Gordon Brown, conversely, has not escaped being his own Chancellor
presiding over the domestic (and increasingly globe-trotting international
handling) of the credit crunch from the autumn of 2007 onwards.

(iii) Territorial management. This is very important in federal structures

but increasingly so in the UK following devolution of powers to Scotland
and Northern Ireland and to a lesser extent Wales. Blair spent more time
managing the core executive's relationships with the devolved elements
of the UK than his immediate predecessors. This is due to the
combination of the impact of the constitutional reforms and a propensity
to continue to attempt to 'control' from Whitehall. The new rules of the
game are still slowly evolving. The nature of these constitutional changes
has meant that Blair fundamentally altered this aspect of the
management of the core executive for his successors. One of the
toughest legacies left for Brown was the success of the Scottish National
Party in winning minority control of the Scottish Parliament in May 2007.
Despite sniping at the edges, there has not so far been the assault on the
rather creaky quasi-federal structures set up in 1997-98 feared from the
creation of a embryonic ‘Scottish Government’ in Edinburgh.3

(b)Supervision at implementation stage

This also has three main elements:

(i) Control & direction of bureaucracy. A traditional role for a British Prime

2
See J. Kampfner, Blair’s Wars (London: Free Press, 2004).
3
It is noteworthy that the joint constitutional committee set up to oversee the relations between Whitehall and the devolved
administrations has not been used at principal level; but at the ministerial and official level the Treasury (through the Chief
Secretary) has met with Finance Ministers from Scotland, Wales and Northern Ireland on a regular basis.

3
 Thain, The core executive in the UK

Minister, increasingly now constrained by the impact of New Public

Management.

(ii) Organisational structure (machinery of government). Blair as Prime

Minister eschewed the use of changes to the structure of departments,
preferring ad-hoc units or task forces. A further indicator of the lack of tools
available at the centre. And 'joined-up government' has become a key phrase,
showing the serious loss of the capacity of the centre to steer. Brown in
contrast has been a more active reengineer of the machinery of government –
both through the creation of new or merged departments in the central state4
and innovation at the level of ministerial and official coordination.5

(iv) Personnel (senior civil servants, advisers). This has been a major
source of tension in the period since 1997. General criticism is levelled
that the British civil service has been politicised. It is too simplistic to
say that the higher civil service (the top 2,500 senior officials) has
become more politicised under the Blair and Brown administrations. The
story is more complex. A number of contextual points need to be made.
First, the trends begun under Margaret Thatcher appear to have
continued under Blair. The civil service as a whole has become
fragmented as a result of the New Public Management changes noted
earlier. The central departments have fewer senior officials. The Treasury
has only around 100 officials in its top grades. Second, being a senior
civil servant is more complex in the early 21st century than it was in the
1960s or 1970s. The key role as the interface between political
administration (the needs of politicians, the operation of the political
game) and policy implementation has diminished as there has been an
attempted separation between policy and implementation and as
ministers have relied increasingly on political advisers or think tanks. The
classic role of the civil servant as a sceptic, assessing ambitious political
schemes with cool detachment, has been eroded after more than 20
years of more adversarial, conviction politics.

Current research suggests that when Blair was Prime Minister and Brown
Chancellor ‘lynch-pin’ policy actors became more salient than during the
Thatcher era, with special advisers (SPADs – political appointees) and favoured
senior officials acting as conduits between the Prime Minister and Chancellor,

4
The most striking was the creation of what has become in effect an economics ministry in all but name with the creation of
the Department of Business, Innovation and Skills in June 2009. Its first Cabinet Minister, Peter Mandelson, has increased his
power resources at the expense of the Chancellor of the Exchequer. (departmental web site can be found at
http://www.bis.gov.uk/)
5
The most significant example being the setting up of the National Economic Council in October 2008 at the height of the
credit crunch. It is a full Cabinet Committee chaired by the Prime Minister explicitly created to coordinate responses to the
down turn. The NEC is serviced jointly by the Cabinet Office and Treasury. This is mirrored at the official level by a Senior
Officials’ Working Group jointly chaired by the Permanent Secretary to the Treasury and Cabinet Secretary. Evidence from
discussions with key actors suggests that this has been a significant innovation, changing the balance of power in the core
executive.

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often smoothing over disagreements or brokering deals on high salience policy

areas.6

The Blair years have added particular twists to this pattern but have inherited
much from preceding administrations. What seems to be emerging is a culture
in which minister regard many civil servants as obstructionist - stopping the
agenda of modernisation and reform. New Labour ministers came into power
convinced that the civil service had become too closely wedded to Conservative
Party ideology. In addition, Millbank Tower (the headquarters of New Labour)
transferred into Whitehall the efficient (some would say ruthless) techniques
they used to run the 1997 election campaign. Key 'spin doctors' like Alastair
Campbell, Peter Mandelson and Charlie Whelan maintained the adversarial
approach. At the Treasury, Gordon Brown kept decision-making to a very small
group of trusted advisers, initially at least freezing out senior Treasury officials,
such as the Permanent Secretary Terry Burns. There was an influx of special
advisers, more than usually zealous and committed to their cause and that of
their ministers. Blair extended this by giving some of these special advisers the
power (via an Order in Council) to direct and overrule civil servants.7 This
blurred the distinction between official and party roles.

The culture of assuming that a centre-left government could not trust senior
officials increased the loss of trust between ministers and officials evident in the
Thatcher years. Yet the story is not uniformly clear-cut. Select numbers of
Treasury officials soon became trusted in the Chancellor Brown’s circle of
advisers, although the contingent premium on loyalty that may be at odds with
the historic fiction that civil servants should be neutral. Philosophically this may
presage is the creation of a style of ‘court government’ around key politicians
within the core executive. As one chronicler of this trend has noted: ‘the
personalization of public administration extends to both the formulation of
policy proposals and the delivery of programmes and services. The prime
minister’s inner court will concentrate on policy issues that matter to the prime
minister...in the total scheme of things, individuals have come to matter more
than hierarchy.’8 What could be added is that this may herald the creation of
an inner core within the core executive, and fewer structural constraints on
those in that elevated position.9

6
The most significant such lynch-pin advisers were Ed Balls and Ed Miliband (the ‘two Eds’) acting for Gordon Brown and
David Miliband acting for Tony Blair. Senior officials who were able to successfully move between the two camps, included
Gus O’Donnell (Brown’s permanent secretary at the Treasury who moved to be Cabinet Secretary), and Jeremy Heywood
who worked for both the Brown team, then for No 10 and then for Brown again when he became Prime Minister. Often
debates over prioritising public spending or public sector reform would move in to these key policy actor’s in-trays.
7
The rescinding of this rule was one of the first acts of Brown as Prime Minister.
8
Donald J. Savoie, Court Government and the Collapse of Accountability in Canada and the United Kingdom (Toronto:
University of Buffalo Press, 2008), 321.
9
This argument may have been pushed too far. There is evidence from Brown’s Premiership of a return to more normalised
relations and less dominance by charismatic courtiers. It should be said that many officials will see their future career
dependent on showing a potential new administration of a different party that they are not too tied to their current political
masters. And of the key lynch-pin players during the Blair/Brown years, three are now Cabinet Ministers in their own right.

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(c) Mobilisation of support

This has two main elements:

(i)Support from the Elite (party, Parliament and Cabinet). Blair had an
extraordinarily easy ride managing and controlling his party for almost the
entire period of his Premiership. This reflects the 'capture' of Labour by New
Labour10 and the desire to avoid election defeat. There are signs early in the
second term, however, that 'normal politics' might resume as the Cabinet
becomes fractious over public spending, Foreign policy and (potentially) the
single currency. The Parliamentary Labour Party has become more rebellious
over such issues as UK support for US policy toward Iraq and further private
sector involvement in the public sector.

(ii)Mass support (opinion polls, elections). Despite three successive

election victories, Labour's share of the vote has fallen each time and
apathy seems to characterise attitudes toward the administration even
before the Government of Brown has suffered electorally as a result of the
economic downturn. Key issues for political leaders are: the degree to
which they can obtain compliance/cooperation from actors in the political
system; the need to create a mandate for their own agenda; and the
degree to which media relations can be successfully managed.

Early success in all these fields has given way to criticism and scepticism that
New Labour is too concerned with spin and presentation than substance.

(d) Ceremonial/political theatre

Tony Blair tended to project the idea that he personified the state/government.
One of the sources of tension between Brown and Blair was the latter’s
domination of this element of political leadership (see for example Blair's
fronting of the 2001 election campaign). Blair’s globetrotting role since
September 2001 and the vying between them for dominance of the agenda over
aid to Africa added further to political leadership-as-theatre.

(e) Crisis management:

This has two main elements:

(i)Internal (eg BSE, foot and mouth, fuel protests, Countryside Alliance).
10
The idea of ‘capture’ does not seem farfetched as a small group – Blair, Brown and Mandelson – effectively moved the
party towards a modernising agenda and were then able to maintain an almost Leninist central control of the party through to
the transition into Government in 1997. The malleability of the British system to almost regular, cyclical capture by a small
elite at the centre of the core executive, stretching practice and precedent, has provoked criticism from senior officials. See
the most recent from former Cabinet Secretaries to the House of Lords Constitution Committee’s enquiry into the Cabinet
Office http://www.publications.parliament.uk/pa/ld/lduncorr/const010709ev5.pdf (Lord Turnbull) and
http://www.publications.parliament.uk/pa/ld/lduncorr/const240609ev4.pdf (Lord Butler and Wilson)

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This element punctuated key moments in the Blair premiership. To some

extent, it represents policy failure, although it is also the consequence of
changes in politics and changes in technology/biotechnology

(ii)External (eg post 11 September). Despite the UK's relative size, Blair
continued a tradition of British Prime Ministers acting as if the UK remains a
great power. Actions over Kosovo, Afghanistan and involvement in the attempts
to find solutions to the Middle East crisis, and an attempt to push the multiple
crises of Africa onto the world agenda, all give weight to this. What varies
internationally is the degree to which a key political leader (whether Prime
Minister, President, or Chancellor) is able to pursue these tasks with greater or
lesser constraints from other political actors, groups, parties and institutions.

Whatever the appearance of a 'one-man show', the reality is that there is an

identifiable core executive in the UK, made up of a number of key political
actors, departments, agencies, civil servants and advisors. Power is shared.
There are at least nine propositions that summarise the operation of this British
core executive:11

• All actors within the core executive have resources, whether legal,
constitutional, political, hierarchical, technical or informational. In
order to achieve goals resources have to be exchanged, leading to
compromise, co-operation, conflict and strategies. Notions of prime
ministerial government, Cabinet government or presidentialism are
irrelevant because power within the core executive is based on
dependence not command. In order to understand the operation of
the core executive we need to trace the structures of dependence
between one actor or group of actors and another. These structures
of dependence are often based on overlapping networks. Frequently
these networks do not follow formal organisational structures,
leading to fragmentation and conflict over responsibility and
territory. Even resource -rich actors, such as the Prime Minister, are
dependent on other actors to achieve their goals. Therefore,
government works through building alliances rather than command.

• Actors operate within a structured arena. Traditional approaches to

central government have placed too much emphasis on personality.
Prime Ministers, officials and ministers are bound by external
organisation, the rules of the game, the structures of institutions,
other actors and the context. Therefore, the nature and form of the
core executive does not change with personality as dramatically as
11
Discussed by Martin J. Smith, The Core Executive in Britain, Basingstoke: Macmillan, 1999); R.A.W. Rhodes and P.

Dunleavy (eds), Prime Minister, Cabinet and Core Executive (Basingstoke: Macmillan, 1995); and B. Guy Peters, R.A.W.
Rhodes and V. Wright (eds), Administering the Summit: Administration of the Core Executive in Developed Countries
(Basingstoke: Macmillan, 2000).

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 Thain, The core executive in the UK

many accounts would have us believe.

• There are structural constraints on even the most powerful political

actors. The degree of dependence that actors have varies with the
context. As the political and economic situation changes, actors may
become more or less dependent. Economic success may provide the
Chancellor with more freedom. Electoral success may provide the
Prime Minister with greater room for manoeuvre. Economic failure
means the Chancellor needs more support from the Prime Minister.
Political failure means the Prime Minister needs more support from
the Cabinet.

• Local or global crises tend to mean that the Cabinet and its key
committees become more significant to a Prime Minister

• Because of the distribution of resources, the strength of

departments and overlapping networks, the core executive is
fragmented and central coordination is extremely difficult.

• All actors in the core executive operate on different but

overlapping terrain. The Prime Minister is at the apex of government
and the resources at his or her disposal derive from the
constitutional and political import of the office. The PM has
substantial power resources as a result of the hire-and-firing role,
relatively unconstrained in a Parliamentary Monarchy. Yet all Prime
Ministers are constrained by the Cabinet, party and the outside
world.

•The terrain of an individual minister is the department and the

constraints are departmental rules, values and institutions, and
Cabinet colleagues, in addition to constraints imposed by the Prime
Minister and the outside world. Ministers have their own legal,
political, constitutional or informational resources and they bring
these into play in debates about policy. One of the paradoxes of the
Blair years is the degree to which ministers are allowed to get on
and act using these resources at the same time that the Prime
Minister and his office seeks to steer and impose direction.

•All members of the core executive exist on terrains where they are
expected to act, where they are expected to make choices about
policy and the rules of government. But these choices change within
varying contexts, structures and resource dependencies.

• Whilst personality may be one of the factors affecting choices, it

should not be seen as the only or significant factor. Prime Ministers
have different styles and they are in a position to affect the
structure of government but their style is also shaped by the
context and their dependencies. The Prime Minister, however
seemingly dominant (like Thatcher or Blair) should be seen as an
institution of government as well as a personality.

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 Thain, The core executive in the UK

3. Prime Minister, Chancellor, acolytes and lynch-pins

Blair re-wrote the history of modern British politics and administration. The
general election victory of June 2001 produced the first consecutive and viable
Labour parliamentary majority, with a majority of 167 seats following on from
the 1997 landslide majority of 179; this was followed by a further manageable
majority in 2005. For the first time, the Labour Party was guaranteed a series of
full four- or five-year term. The capacity to influence the shape of British politics
over a 12 to 13-year period was, therefore, enormously enhanced. Indeed, the
size of the majority, the relative weakness of the Conservative opposition and
the relative strength of the Liberal Democrats produced a reasonanly
comfortable third election victory. It was the re-election in 2001 that presented
Blair and Brown with the chance to produce a similar agenda shift achieved by
Margaret Thatcher in the 1980s: arguably this did not happen.

Yet why, even several months into that second term was Blair's administration
beset by problems of policy implementation, central government structure, the
role of civil servants and advisors? Why, despite an unprecedented period of
Labour economic policy-making success and an increase in public spending,
was the general election marked by apathy (a turnout less than 60% of the
electorate) and lukewarm enthusiasm for the New Labour project? Why can this
huge parliamentary majority not affect change in public services and key public
policies? Why have debates resurfaced about Blair's 'Presidential' style? Why
was there a lack of drive, energy, and debate within the Cabinet, leading to the
siren voices claiming the death of the Cabinet? In short: did the Blair
administration suggest that the British Central State faces multiple problems of
policy formulation and implementation and a propensity to policy failure or
inertia?

From government to governance: the impact of the legacies of

the 1980s

There is clear evidence that New Labour has faced problems with the core
executive and the wider public sector resulting from changes that have been
unfolding since the late 1970s and early 1980s. A number of changes that have
weakened the capacity of the centre to affect change: After 1979, policy
networks based on central departments changed - the membership of networks
became broader, incorporating both the private and voluntary sectors. The
government swapped direct for indirect controls. The much debated trend
dubbed 'New Public Management' which swept through the industrialised world,
centred on the UK and USA, during the 1980s and 1990s produced privatisation
of utilities, swapping control through ownership for control by regulation. It
contracted-out services to the private sector. It introduced quasi-markets
through purchaser-provider splits when services could not be privatised. It
bypassed local authorities for special-purpose bodies. It removed operational
management from central departments and vested it in separate agencies.
Fragmentation not only created new networks but it also increased the
membership of existing networks. Private sector ideas and organisations were

9
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seen as the most appropriate managers of public policy.

The centre has less and less control over a much smaller public sector. Key
economic groups (like the TUC) have been excluded from the policy process.
Central departments were no longer necessarily the focal organisation of a
network. Whilst still providing the resources, the Central State is increasingly
dependent on multifarious networks involving a fragmented public sector, the
private sector and voluntary agencies. These trends make steering policy
problematic and create the need to find mechanisms for coordination and
integration. There is a tendency to set the overall direction of policy rather than
the detail of policy - producing a lack of detailed intervention. And there is less
and less consensus between official and politicians. The state has been
'hollowed out'. It has been reduced in size and autonomy by pressures from
above (such as from the EU taking more decision-making roles, the G7 acting as
the agency of international policy co-ordination, the World Trade Organisation
and IMF as key economic policy agencies), from below (as decentralisation to
the constituent parts of the UK has marked the thrust of constitutional reform
under Blair), and from the side (by agencies made up of private, public and
voluntary sector involvement in public policy). At one and the same time, the
state has fragmented and become more dependent on international and
transnational organisations and agencies. Just as the challenges faced by
globalisation become even more intense, the state has less capacity and tools
to effect change or even to 'steer' policy.
Instead of Prime Minister Blair being at the head of government he was
engaged in 'governance' - managing complex relations, cajoling public and
private agencies, reinventing the machinery of the state in order to deliver. The
public still expects results but the machine is increasingly incapable of
providing quick responses. This fundamentally challenges the notion that Britain
is a unitary state with a strong executive.

Blair as co-ordinator: the increasing crisis of the centre

One of the most assiduous students of the role of the Prime Minister and his
staff, George Jones, has noted that:

'No hard-and-fast boundary can be drawn around "the Prime

Minister's Office". Externally it has long been amorphous and
permeable. Its shape and size vary, depending on time, activity
and political circumstances. It can incorporate aides in a variety
of Whitehall offices to work for the Prime Minister, or transfer to
new or existing institutions roles once undertaken within No.10.
Its porous boundaries enable staff appointed to other ministries
or offices to liaise so closely and so frequently with No.10 that it
becomes a quibble whether they work for the Prime Minister, the
Chief Whip, the Cabinet or the Treasury. Setting up a Prime
Minister's Department would freeze current structural
arrangements, and persistence would be needed by Prime
Ministers, intent on changing practices to suit their styles of
working. It might become less efficient and versatile; exposing
some ambiguous relationships that help facilitate the processes

10
 Thain, The core executive in the UK

12
of governance.'

As with so much of the management of the core executive, the role of the
centre has been and will continue to be flexible, and adjusted to the needs of
the Prime Minister of the day.

Five factors explain why Blair's approach to the coordinating function of the
centre created a disjointed Cabinet Office/Prime Minister's Office grid.

Personal style
Prime Minister Blair was known to favour working with small groups of
people, informally. He also showed his support for what might be termed the
'charismatic' policy adviser - bringing people such as Lord Birt (former
Director-General of the BBC) to advise him on the future of transport policy
and, more controversially, the break-up of the Treasury in 2004-5..

Coping with the fragmentation of the public services

Many units and initiatives were an attempt to plug holes in policy-making or
policy implementation resulting from the trends of the 1980s and 1990s noted
earlier. Behind the desire to produce more integrated and coordinated 'joined-
up government' was a bigger and more significant problem of the centre
lacking the levers to steer. The best examples of this trend were the creation of
the Social Exclusion Unit in 1997 and the Women's Unit (now Women and
Equality Unit). After the 2001 general election, the Prime Minister's Office of
Public Services Reform (OPSR) was created, another example of this trend. This
was led by Wendy Thomson, a former Director at the Audit Commission and
Chief Executive of the London Borough of Newham. OPSR lead the attempt to
create cross-departmental projects to tackle critical policy weaknesses.13

Devolution
The third factor is coping with the consequences of devolution of power with
the resultant decentralisation of decision-making from Whitehall. The Cabinet
Office's Regional Co-ordination Unit (RCU), part of the Government Offices for
the Regions, was a good example of this.

Countering the power of the Treasury.

Even though the Treasury is regarded as a key component of the centre,
alongside the Cabinet Office and the Prime Minister's Office, there has long
been a tense relationship between these institutions. The Treasury has always
been jealous of guarding its role as manager of the pay and conditions of the
civil service and of its rights to receive notification of developments in
departments likely to produce demands for public money. It has also been wary
of the Prime Minister attempting to be his or her own Chancellor through

12
George Jones, ESRC Whitehall initiative.
13
This trend resulted in the creation of the Prime Minister’s Delivery Unit, and heated debates between Blair and Brown over
the ownership of key elements of public sector reform (discussed by Michael Barber, Instruction to Deliver: Tony Blair, Public
Services and the Challenges of Achieving Targets (London: Politicos, 2007).

11
 Thain, The core executive in the UK

accessing advice on economic policy matters. This is given added spice when
the Treasury is led by one of the most commanding and resourceful Chancellors
of the post-war era. One example of prime ministerial use of the creation of
units to counter-balance Treasury influence is the Performance and Innovation
Unit (PIU). The unit sees its role as contributing to the need for more
coordination and tackling 'long-term strategic issues that cut across
departmental boundaries'. It reported directly to Prime Minister Blair. Its most
significant reports to date have been a review of energy policy, and a report on
the development of the UK's workforce; the latter could be regarded as part of
the Treasury's brief.

The relationship between the Prime Minister Blair and Chancellor Brown was not
only a pivotal one in terms of debates about policy but was crucial in terms of
the way in which the core executive has been managed since 1997. Much has
been written of the relationship between the two most powerful men in the
Cabinet. It cannot be described as a conventional power battle or an ideological
struggle but it is as close as we have been in the UK to the French practice of
dual-executive power.

On taking office in 1997, Brown was given enormous amounts of constitutional

and political power resources. Brown augmented these over his period as
Chancellor. He chaired two key economic committees of the Cabinet - Economic
Affairs (EA) and Public Services and Public Expenditure Committee (PSPX) and
all the sub-committees of the EA committee. The importance of the Chancellor's
dominance in this sphere is underlined by the fact that he chaired a sub-
committee on Employment and one on Children and Young People's Services,
both of which were in the domain of other Cabinet members. In addition, the
Treasury's position was strengthened by the Chief Secretary chairing the sub-
committee on Electronic Service Delivery (PSX- E). These committees were at
the heart of the government's domestic agenda.

The second element in growing Treasury power was in public spending.

Brown continued the trend begun under the Conservative Chancellors
Norman Lamont and Kenneth Clarke of turning the Treasury into more of a
strategic controller of spending - less interested in in-year control, cheese
parings and more concerned about the contribution of spending to wider
objectives. Brown's particular contribution has been to shift the emphasis
further still to a concern about policy outputs - what is bought with the
additional expenditure - and policy outcomes - does it produce better health
or better education? Departments now have a public service agreement with
the Treasury. Increases in spending are dependent on departments
delivering value for money and policy improvements aimed at modernising
the public sector. The PSPX committee is charged with monitoring the
achievements of these and as Chancellor he chaired that committee. This
represented an unprecedented increase in Treasury involvement in
departmental policy-making.

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 Thain, The core executive in the UK

Third, the Treasury drove the core domestic policy-making agenda of the New
Labour Government, rather than playing its more traditional participant and
veto roles. Welfare-to-work is a Brown initiative. Social security reform and the
creation of a tax credit approach to welfare policy were shaped by the Treasury
and not the department of Work and Pensions. The 'new deal' for the young
unemployed was seen as representing the Chancellor's brand of radicalism. The
drive to increase productivity and competitiveness comes not from the DTI but
the Treasury. This did not stop at domestic policy-making. The Treasury was
instrumental in shaping the UK's positions on third world debt relief, reform of
International Financial Institution and, crucially, policy toward the European
single currency. The Treasury's National Changeover Plan brought it into the
role of advising business and the public sector on preparations for the single
currency in what would traditionally be the job of the DTI. More broadly still
Chancellor Brown made the running on setting out the criteria for joining the
single currency. In practice he has a veto on whether the UK moves toward this
historic change.

The single best example of Brown’s style as Chancellor was the way in which
policy reviews became a chosen means of spreading Treasury power, without
necessarily increasing the coherence of coordination. During the period 1997-
2008, Brown initiated 41 reviews of policy. In addition to those reviews which
could be seen as part of the Treasury’s core business, or where the department
had a quasi-legal responsibility, or forced to initiate as a result of
maladministration, there were three types of review which can be categorised
as showing evidence of the spread of Treasury power and influence: ‘leviathan
reviews’ (where he was able to dominate the policy landscape and show his
capacity to trespass on other actors in the core executive) – including the
Wanless Review of health spending, Stern review on climate change, and the
Lyons enquiry into local government; ‘stone turner reviews’, that is where the
Treasury acted to energise a policy area grown moribund by inertia by other
departments – such as the Baker review on planning; and third, ‘economic
department reviews’ where the Treasury gave greater emphasis to its role as
effectively the economics ministry, trespassing on the role of the DTI in so
doing – key examples include the Hampton review on regulatory inspection, the
Leitch review of skills, and Sainsbury review on science.

The sheer breadth of involvement of the Treasury in almost every aspect of

government ironically gives substance to the charge of 'Treasury power' that in
the past was claimed amid great fanfare but was in fact more rhetorical than
real. The changes to Treasury responsibilities and role, which have occurred in
the last two years, raise a number of important issues. Historically, the Treasury
has always been a typical British institution - evolving and adapting. The core
role of protecting the public purse has been expanded and augmented by
broader macro-economic responsibilities. It is a highly political beast, adapting
to the personalities of its Chancellors.

What was different was the expansion of the Treasury into a direct policy-
making body, a body which controls the agenda in a way that does not reflect

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accepted structural responsibilities but the interests of its Chancellor. There are
dangers in this. Practically speaking, does the official Treasury have the
capacity to monitor the range of policy tasks now set, after nearly a decade of
reductions in senior staff numbers? Can the Chancellor, despite his legendary
work-rate (fast approximating Gladstone's reputation in a what was a quieter
age), keep up the pace? The enormous increase in power resources are
predicated on the assumption that prudence and long-termism will pay
economic and political dividends. What if economic conditions worsen? What if
policy delivery is not in line with the modernisation plans? The Thatcher and
Major governments began the process whereby central government
departments have to justify their existence. Brown's expansion of the
Treasury's role can be seen as part of the turf wars of Whitehall. Is there a need
for the Department of Work and Pensions if the Treasury performs that role?
What was the value of the DTI in this new configuration? Brown’s successor as
Chancellor, Darling, has faced the consequence of the Treasury having being
turned into an instrument of Brown's concerns - sort of bespoke departmental
tailoring - that proved unsustainable. One of the legacies of that period might
have been the over-politicisation of the most important of the central
departments, too dependent on the person in charge.

Why was Chancellor Brown and the Treasury as his instrument so powerful?
Any explanation has to focus on the trauma of Labour's four successive
electoral defeats during the 1980s and 1990s. Discipline and rectitude in
economic policy-making is seen as an essential prerequisite for gaining and
keeping power. Both Blair and Brown want to capture the traditionally
Conservative sobriquet of being 'competent' managers of the economy. The
decision to maintain Conservative spending plans for the first two years in
government and then only to increase spending in targeted ways is a clear
example of this approach. Similarly the commitment to being a low income
tax government is seen as a politically expedient approach. This fiscal
'conservatism' gives crucial political power resources to the Treasury, which
remains at heart a traditional Ministry of Finance.

The Treasury gained from the centralisation of control in government.

Ministers were disciplined by the collective loyalty to the Blair 'project', despite
some 'traditional Labour' ministers having ideological misgivings. This enabled
the Chancellor to impose the changes in the public spending regime. It does
not, however, explain why the Chancellor has been able to move into policy-
making areas traditionally the preserve of the departments. In part this is
explained by the solidity of the Blair/Brown axis on policy issues. The other
explanation is that the Treasury has been liberated from its post-war role of
managing monetary policy and the intellectual and organisational resources
released have enabled 'meddling' in departmental business. The absence of
real politico-administrative antagonism to this remains a surprise. The network
of Brown or Blair-supporters in key ministries does not explain the absence of

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bureaucratic unease at the rebalancing of Whitehall relations in favour of the

Treasury. Only murmurings of unease filtered out after the second
Comprehensive Spending Review, in 2002. There were stirrings of resistance
to the Chancellor's famed combative and abrasive style fuelled by a tough set
of spending negotiations. Departments such as the Home Office, Transport,
Local Government and the Regions, Education and Skills, and Health are all
under political pressure to deliver and have therefore even more incentive to
publicly resist Treasury attempts to limit resources and constrain departmental
discretion.

Policy complexity
The final factor accounting for the confusion of agencies and units at the
centre is the inevitability of policy complexity. The greater the pressure to find
governance mechanisms allied to the rapid changes occurring in the domestic
and global economies, the more likely that policy-making and implementation
will become more complex. The creation of the Office of the e-Envoy in January
2001 exemplified this. The Office had the tasks of: making the UK the best
place for e-commerce; widening access to the internet;
making all government services available electronically by 2005. The office
was led by a civil servant, located in the Cabinet Office but reported to the
Secretary of State for Trade and Industry who provided monthly progress
reports to the Prime Minister.

4. The economic policy machine

Gordon Brown delivered what few would have predicted in 1997 - a ten year
period of economic policy success for a Labour administration. However
"success" is measured - low inflation, falling unemployment, growth rates,
controlled public finances - the story has been of competent and sure-footed
management of economic policy-making. This is the first time that a second
term of Labour government has not been marred by economic policy crisis.
Much of this success has to be ascribed to Brown's codification of economic
policy resulting in consistent policies and structures viewed by financial
markets and overseas holders of sterling as predictable and 'orthodox'. At the
same time, Brown began to increase public expenditure on key elements of
the government's policy priorities.

There are two elements of policy worth briefly reviewing: the new
arrangements for monetary policy and the evolving policy toward the single
European currency.

Revolution in monetary policy: the role of the Bank of England

Brown's decision in 1997 to give operational independence to the Bank of

England has had far reaching consequences for the running of UK economic
policy. One of the most significant developments which has occurred in the

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operational policy regime announced by the Chancellor is the setting of an

asymmetrical inflation target of 2.5%. Unlike under the previous
Conservative administration where 2.5% inflation or less meant acquiescing
in inflation well below this, the Monetary Policy Committee (MPC) is charged
with acting to ensure inflation does not fall too low. This is, in part, a
defence against anti-inflationary policy becoming so tight that it affects
output and jobs and a means by which the psychological value of prices and
wages rising at a reasonable pace is maintained. The commitment of the
government is to stability and predictability. Inflation has been at or below
this target and the MPC acted quickly to reduce interest rates when world
growth slowed and then was further affected by the 11 September 2001.

Equally important has been the emergence of debates about the way in which
the MPC operates. The model of decision-making that was adopted shares more
in common with the Federal Reserve in the US than with the dominant EU
model of the Bundesbank. The MPC as a whole is accountable for the
achievement of the inflation target and failure to achieve this triggers a letter
from the Governor of the Bank to the Chancellor. In addition, the Bank is
required to report to the House of Commons Treasury Select Committee.
Minutes of the MPC are published, as are the voting records of the members of
the committee at the monthly meetings. Such openness has been criticised by
the European Central Bank (ECB) as being too open and hence liable to unsettle
the financial markets. Criticisms have also been levied that the MPC is too
analytical, too 'academic'. It is possible to argue that, in order to create
credibility for a UK anti-inflationary policy which is noted for its long-term
failure, it is necessary to be transparent and risk too many debates about the
individual actions of members of the committee. There is also a tension built
into the system that, although the committee as a whole is accountable for
decisions, so are individual members of the committee. This makes the UK
'experiment' unique. The cultural differences between the ECB/Bundesbank
model, with its relatively secrecy and lack of formal mechanisms of
accountability,and the emerging UK approach, suggests further problems for
the UK in joining the single currency.

The MPC has also been criticised for its lack of representativeness. This is code
for the degree to which business people in the manufacturing sector regard the
new system as being biased in favour of the interests of finance capital. This is
a charge with a long pedigree. The specific criticism is that the MPC has no
'representative' from industry. Of the ten individuals who served on the
committee in its early years , four were from outside the Bank of England. Two
are academics (Charles Goodhart ,a former Chief Adviser to the Governor; and
Willem Buiter), one is a former Chief Economic adviser to the Treasury (Alan
Budd) and only one (DeAnne Julius) has experience in commerce being a former
Chief Economist at British Airways and Royal Dutch Shell. The bias is also seen
as geographical, with the London Metropolis predominantly represented. Behind

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this concern is the fundamental issue of the degree to which the exchange rate
has been higher against the euro in part because interest rates have been
higher than in the euro-zone attracting funds into sterling. In unravelling the
threads of these criticisms, it is clear that although the membership of the
committee and its rules of engagement can be justified as performing the single
role of containing inflation, there remains the flicker of conflict over the
protection of the City over the interests of manufacturing capital. Moreover, the
new monetary regime may have set anti-inflation policy on a more rational
footing, but the 'problem' of sterling's volatility is not going to be resolved until
sterling joins the single currency and only then with potential costs in terms of
other policy objectives. Conflicting policy objectives have not been removed by
the new rules introduced by Brown, only reshaped and removed from party
political debate.

A case study of core executive inaction? The euro: continuity and

change
Whether or not to join the European single currency has been a central dilemma
for British policy-makers since the Maastricht Treaty. The provision which allows
the UK to choose if and when it wants to join the single currency has not
reduced the controversy. At first sight, the Blair administration appeared to
have adopted a far more positive attitude to the euro than the Major
government. The Cabinet appeared not so bitterly divided on the issue, and
European policy in its rhetoric was initially at least communitaire. Yet, the detail
of the policy statement by the Chancellor in October 1997 could have been
made by his Conservative predecessor. What apparent continuity hides is an
old fashioned power battle between Prime Minister Blair and Chancellor Brown
over a key element of ‘high politics’. The Treasury under Brown hijacked the
decision-making process and clothed this cleverly in the need for rational
evidence-based policymaking. Thus the ‘five tests’ of whether the UK should
join were initiated. The Treasury produced 18 detailed assessments of many
aspects of the case to join, often having its work externally assessed. 14
Essentially for a large part of the 1997-2003 period the government was
committed in principle to join provided five economic tests were applied and
found satisfactory. The publication of the tests in 2003 effectively kicked the
decision into the long grass.

Chancellor Brown's now famous five tests reveal a remarkable consistency in

the UK policy elite's attitude to the euro. The debacle of Black Wednesday in
September 1992, when the sterling was forced out of the Exchange Rate
Mechanism (ERM), has had a profound effect on the 'assumptive worlds' of
policy-makers. The fear is that the UK economy is on a different economic
cycle to the continental European economy, and that interest rates prevailing
in the euro-zone will thus be inappropriate for economic conditions in the UK.

14
Discussions with key officials suggest that at least at the official level there were no preconceived conclusions drawn prior
to the analysis. Ed Balls as Chief Economic Adviser was involved but much of the economic analysis was left to the
discretion of teams of Treasury officials. The political decision was a different matter.

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The five tests could be viewed as a permanent block on UK membership if the

UK economy continues to be at a different stage of the economic cycle and if
UK inflation level demands a higher level of interest rates than that set by the
ECB. Yet, such economic considerations are less pressing than the
fundamental fear shared by Brown and Blair that a referendum on
membership might be lost in the face of a campaign based on the loss of
national identity and sovereignty. Prime Minister Blair began as a more
cautious advocate of membership, whilst Chancellor Brown was a more
committed one. Those roles soon reversed, with the Treasury concerned at
the initial poor performance of the euro and at a sluggish European economy.
The fourth criterion appeared to be the one most exercising the Treasury -
will the City's role as a leading financial centre be damaged by non-
participation in the euro? Chancellor Brown’s key adviser, Ed Balls, was a
sceptic of membership. Brown’s capacity to reshape the economic policy
framework – until 2007 deemed a huge success – was seen to be threatened
by linking the UK to the Euro-project. At the heart of this was a battle over
the philosophical direction of British politics and policy – and Prime Minister
Blair was unable to rest the decision from a powerful and assertive
Chancellor.

There are three notable points to be made about the internal debates in
Whitehall over when to initiate the five tests and whether to then recommend
joining the euro in a referendum campaign. First, the then Chancellor had an
effective veto on the process. He ensured that the Treasury was, and remains
in control of the timetable. Second, the five tests were effectively a screen
hiding essentially political judgements about the euro. Most of the tests are
subject to varying interpretation and economic arguments are likely to be
balanced. Third, there was an irony that the very changes to the economic
policy machine that Brown has made - especially greater independence to the
Bank of England - have been so successful that they make a decision about
joining the euro less about ensuring consistency and creditability to British
policy than would have been the case in the 1990s. Chancellor Brown was
unwilling to forgo a successful model of economic policy-making for a less
accountable ECB running a monetary policy for the whole of Western Europe.
Fourth, unlike the Cabinet demanded a greater role as a result of the 2003
economic tests process, core executive involvement in this key decision was
effectively one key player: the Treasury, with a bit part for Prime Minister Blair.
This reflected Brown’s dominance but also the institutional concern of the
Treasury not to have a key economic decision made more politicised.

5 Conclusion: disaggregation to dysfunction to

‘business as usual’?
There is a mis-match between the theory and reality of the so-called strong UK
case of core executive action. A cyclical pattern can be discerned -for a large
part of the late 1990s and 2000s the core executive was strengthened to

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become almost a singularity around two key players, and then fractured in what
became in effect dysfunctional government. Since 2007 there is evidence of
some return to business as usual but with the legacy of lack of effective
coordination at the centre and the increasing ‘personalisation’ of power. What is
just as fascinating is the continuation of some form of interministerial
coordination and official coordination despite the fissures at the centre of the
system; a product of the courtier mentality and the disaggregation of policy
domains.

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