With all the focus on this week’s Spending Review, the role of His Majesty’s Treasury in the functioning of our country is rarely more in the spotlight.
The UK Treasury isn’t just a finance ministry, it’s the central brain of government. It sets tax policy, controls public spending, oversees infrastructure investment, signs off on public sector pay, and even sets the rules for economic forecasting.
With all this power, at times it feels like HMT is running the country rather than No. 10.
It hasn’t always been like this. Over the past decade, HMT has significantly expanded its reach, both in policy remit and institutional capacity. From 2013 to 2023, its headcount more than doubled, growing from around 1,000 civil servants to over 2,500, and the department is now double the size it was under Gordon Brown. This growth has not just been about keeping the country on track, it reflects a deepening centralisation of decision-making authority across Whitehall.
Centralised control might sound efficient, with a single, all-powerful department coordinating the country’s finances. But in practice, it has stalled progress, stifled innovation, and throttled long-term planning, all of which have contributed to our anaemic growth.
For decades, the Treasury has prioritised short-term fiscal discipline over long-term investment, with a focus on fiscal protectionism rather than growth.
Yes, the current Government has relaxed the ‘fiscal rules’ to stimulate investment, but with individual departments, regions and even the Prime Minister still beholden to the Treasury to get anything done, it’s hard to see us breaking out of our low-growth doom loop without challenging the status quo.
And that should start with breaking up HMT.
Modernising the State
None of this is about weakening the Treasury for the sake of it, it’s about building a smarter, more modern state that is resilient, adaptive, and fit for the long-term challenges ahead.
If the current Labour Government is serious about reforming the state, then a bit of bold ambition could reshape the country for decades to come. In its current incarnation, the Treasury’s approach, culture, and incentives are all geared toward short-term budget control and risk aversion, and we must break that mentality if we are to unlock the latent potential across the country.
In an age when we are trying to drive efficiency across public spending, breaking up the Treasury would also deliver efficiencies, as there are HMT teams that mirror functions across most other government departments and hold the final say on spending decisions. Streamlining the system would reduce duplication and speed up decision-making.
We need a smarter, more agile approach to finance, one that aligns incentives, and helps coordinate across silos, but doesn’t hoard every decision.
Lessons From Abroad
Luckily for us, if the Government were serious about reform, there are plenty of examples out there of countries that successfully split the fiscal and investment functions of government and deliver better outcomes at the same time.
Germany has a powerful finance ministry, but it doesn’t decide how roads get built in Bavaria or how schools are funded in Saxony. That’s devolved to the “Länder”, the 16 federal states with real autonomy and tax-raising powers. These states have their own governments and parliaments, and are responsible for a range of powers and, crucially, the Länder independently decide on their expenditures and debt levels, though they are generally unable to introduce their own taxes or set tax rates.
In Canada, infrastructure and economic development are coordinated through different ministries with clear remits. The Department of Finance takes on the fiscal work while the Ministry of Housing, Infrastructure and Communities Canada (HICC) takes a lead role in regional planning and investment, working closely with the regional governments in the provinces and territories and Regional Development Agencies (RDAs) – remember those?!
There’s a similar set-up in Australia, with responsibilities divided between Treasury (macro policy, tax) and Finance (budget process, public sector management), while investment planning lies with individual departments, not centralised into one Department.
The Case for Fiscal Devolution
In all of these examples, one thing is clear: fiscal devolution to local or even departmental level works.
For real reform, breaking up the Treasury alone isn’t enough. We need to devolve not just responsibility, but resources away from Whitehall and especially to regional and city leaders.
At present, local government in England raises just 5% of all tax revenue and depends on complex, opaque grant systems administered by Whitehall. This creates dependency, undermines long-term planning, and centralises blame without power.
It’s a uniquely British arrangement; in France, local and regional governments control around 20% of public spending. In Germany, it’s over 40%. In the UK, we rely on Whitehall for almost everything.
The English Devolution Bill, set to be introduced in this Parliamentary term, is a welcome development, but it doesn’t offer the real devolution that is needed to make change. We need Metro mayors and combined authorities to have access to new fiscal levers such as local income tax supplements, land value capture, tourist levies, and more flexible business rates. We should let regions borrow against future growth, with sensible rules and oversight from the central government, rather than just relying on handouts.
A 4-step plan to Restructure HMT
This might all sound like machinery of government navel-gazing, but reform is needed and fast if we are to break out of our sluggish growth cycle. The Labour Government has an opportunity to genuinely reshape the country, and for the future and it could be done in just 4 steps:
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- Create a Department for Economic Strategy and Investment
Modelled on Germany’s BMWK or Canada’s Infrastructure Ministry, this department would oversee industrial policy, regional development, and long-term infrastructure investment. It would hold the pen on missions, not just metrics. - Move Budgeting and fiscal policy to a Separate Ministry of Finance
Fiscal oversight and budget balance are still crucial, but they don’t need to sit next to every policy lever. Separate ministries would encourage challenge and improve transparency. - Empower Local and Regional Government
Devolve genuine fiscal powers to cities, counties, and devolved nations. Let them raise revenue, borrow for investment, and be accountable for delivery. - Rebuild the centre of government as a Systems Integrator
Rather than hoarding power, the centre should be redesigned to coordinate across multiple policy priorities, using the ‘missions’ as guidance: health and housing, skills and productivity, energy and environment.
- Create a Department for Economic Strategy and Investment
This isn’t just about better policy. It’s about restoring trust, unlocking growth, and building a country that works, not just from the top down, but from the ground up.
For a Government focused on a ‘decade of national renewal’, breaking up the Treasury should be top of the to-do list.
