At times in this sweltering summer Conservative leadership campaign it has felt as if the greatest enemy of British economic prosperity hasn't been inflation, the Labour Party or the striking trade unions - not even President Putin and his weaponisation of Russia's fossil fuel exports - but rather a single government department. Or, more specifically, the mindset of those who work within that department.
The so-called "Treasury orthodoxy" has been relentlessly characterised by Liz Truss and her supporters as a baleful anchor on the UK economy, holding us back from a voyage into the sunlit seas of economic growth and rising living standards. "What I know about the Treasury from having worked there is that they do have an economic orthodoxy and they do resist change," she said last month.
Truss said that the Treasury had been "peddling" a particular type of economic policy for the past 20 years and that it hadn't delivered growth. "What people in Britain desperately need now is change," she insisted.
Dig into the Truss critique and the Treasury's main offence has been an apparent failure of imagination; its inability to recognise the growth-enhancing potential of unfunded personal tax cuts, an approach that she has pledged to introduce from "day one" if she becomes prime minister on September 5 by reversing the April rise in national insurance contributions.
The attacks on the Treasury serve to needle her opponent, Rishi Sunak, who was chancellor until his resignation last month and who introduced those national insurance increases as well as plans to lift the headline corporation tax back up to 25 per cent.
Yet Truss's attacks on the Treasury orthodoxy have been so seemingly popular with the Conservative membership that Sunak has taken to echoing them, citing the times that he ignored their hidebound advice.
None of this, it should be pointed out, is particularly novel. The "Treasury view" was castigated as far back as the 1920s by the father of macroeconomics himself, John Maynard Keynes, for resisting additional state spending in the face of a collapse in consumer demand on the grounds that it would be economically counterproductive.
As Britain slipped into the Great Depression in 1931, the Treasury urged ministers to cut welfare and public sector wages in a vain attempt to balance the books a strategy now regarded as a historic error. Truss's description of the Treasury's "abacus economics, of making sure that tax and spend add up but not focusing enough on economic growth", is one that Keynes would have recognised.
Few people know as much about the Treasury as Terry Burns. A coalminer's son from Co Durham, Burns spent 20 years at the department, rising to become its permanent secretary in 1991. He held the post for seven years and served under the chancellors Norman Lamont, Ken Clarke and Gordon Brown.
Now Lord Burns, he said, whatever its mistakes in the past, the idea that the Treasury was unconcerned with longterm economic growth was nonsense.
He added, though, that outside of emergencies, such as financial crises, wars and pandemics, it was essential for the Treasury to be prudent with the public finances. "There are some principles that I regard all finance ministers seek to operate by in normal times and it is about sound money, sound public finances it's about an efficient tax system and control over the overall level of public expenditure," he said.
He did not conceal his distaste for the recent rhetoric from politicians, regarding it as a cynical attempt to deflect blame for the outcome of their own economic policies, often taken against the advice of the Treasury. "I think people [at the Treasury] will be surprised that they have been controlling the shots rather than ministers," he said.
Most independent experts would agree with Burns that much of the Treasury-bashing is grossly over the top and that Whitehall needs to exert discipline on departmental spending, not least over prime ministers who often regard increased public spending and tax cuts as attractive levers to pull regardless of the consequences for the nation's finances.
Yet the view that there is something troubling about Treasury orthodoxy is not merely the preserve of those with a political or ideological axe to grind. Diane Coyle worked at the Treasury as an economist and now studies it closely as professor of public policy at Cambridge University. Her critique of its mindset relates to its stance on public investment, especially in relation to areas such as net-zero infrastructure or upgrading the skills of the nation's workforce.
"It doesn't allow for long-term investment for the state to take a strategic view of what the economy needs," she said. "You have a fiscal orthodoxy that doesn't distinguish between different kinds of government spending doesn't allow that long-term view."
The Conservative MP Kemi Badenoch, before she was eliminated from the leadership contest, advocated a structural split of the Treasury. The idea was to create one, far less imperial, department to steward the public finances in the short term, and a new economic department to write budgets and focus on long-term economic growth.
Critics say that such a plan failed in the 1960s under Harold Wilson. "I see no urgent need to change the architecture," said Lord Burns. "And I take the slightly cynical view that those people who [want to] have not actually been conducting the use of the institutions in the best way that they could have done."
Such a division already exists in countries such as the United States, Germany and Japan. And it's a reform that the Liberal Australian prime minister Malcolm Fraser enacted in 1976. Since then, Australia has enjoyed an average annual GDP growth rate of 3 per cent, versus 2 per cent in the UK.
Correlation does not equal causation. But for advocates of a similar reform in the UK, it's evidence that facing down Treasury orthodoxy - and power - isn't necessarily the road to economic ruin.
This piece was originally published byThe Sunday Times on 21 August 2022