Congratulations on your appointment.
As Second Lord of the Treasury, your relationship with the Prime Minister shapes the domestic fate of the new Government. Older than any part of Whitehall’s machinery, government is built around HM Treasury. Your department affects the operations of Government more than any other.
It’s a department of two halves, where the economic wing will wish to see our cities regenerated by investment in infrastructure, housing and skills; while the public spending half may be culturally sceptical that this is money well spent.
Yet with people in England’s regions and devolved nations feeling as remote from Westminster as Brussels, you will only address waning trust by overcoming traditional Treasury reluctance to be transformative. So firstly, be bold and revolutionary with devolution; and secondly be strategic by focusing on medium-term goals instead of short-term fixes.
On devolution, the mistake in a Comprehensive Spending Review will be to review what could be devolved. For Scotland, Northern Ireland and Wales, the default is that all is devolved other than that which Westminster reserves. This should apply to England too, where policy should be devolved to English local government with as little as possible reserved by Westminster. And thus, investment in local public services will be on the basis of ‘system’.
For example, if the NHS estate were devolved to local government, and rules governing CDEL where local government borrowing is scored against the Department of Health were abolished, local government could transform and accelerate health and care integration. Not to mention build hundreds of thousands more homes. Such reform would be more meaningful in the long term, though I acknowledge not as headline grabbing, than short-term announcements on using £20bn revenue spending in the NHS.
This brings me to local government as it stands on your appointment. After years of austerity, many services are run on a shoestring and councils are facing decisions that should not be made. Not least having to disinvest in prevention such as youth services, public health or food inspections to meet statutory obligations to provide care to the elderly and children.
Local government has among the strongest financial management in the public sector and will largely balance the books as required. But I would argue you should want more than this. You should immediately allow councils to retain all business rates and set council tax levels via the ballot box and not referendums. This will need a fair funding review. The effects will be uneven. CIPFA would implore you to take out the party politics from distribution and create an independent body with experts making transparent recommendations to government, resembling the way the Migration Advisory Committee advises the Home Secretary.
However, this will not be enough for the medium-term pressures faced. This is where devolution and medium-term financial planning overlap. With greater policy and service devolution, not just delegation, local government would need an aligned share of income, sales, corporation, inheritance, capital gains and other property taxes. Accountability for the local state would reinforce trust and confidence in a city or county’s priorities to promote business, develop skills, build homes, improve health and build the infrastructure that’s needed.
With the steady post war nationalisation of services – health, colleges, justice and schools to name a few – England does not have local government. We have local institutions managing some of the local state alongside many local services managed by Whitehall. Ironically, it can only be in the most centralised state in the developed world that you will doubtless be advised to centralise more.
If your Government wishes to retain the union, so severely tested by Brexit, you should actively promote enhanced devolution for the devolved nations.
HMT is both the most impressive and effective part of government, but simultaneously the bastion of the status quo holding back the revolution that’s needed.
Be bold Chancellor, be bold!