Civil service elite faces an uncertain future: Treasury officials are worried as Whitehall prescribes tough new cost-cutting, writes Robert Chote

A FIRE broke out in the basement of Her Majesty's Treasury last week, halting lifts and disabling computers and telephones. This was not the only thing raising the temperature, however; officials were simultaneously taking delivery of a memo describing how they might be selected for compulsory redundancy.

Treasury civil servants traditionally see themselves as the cream of the Yes, Minister crop: their department pulls the levers of economic policy and controls Government spending like a spider at the centre of the Whitehall web. Many of its officials have forgone the high salaries and bonus payments offered in business or the City for the security, prestige and public service ethos of a career at the heart of Government.

But this culture is under threat. Redundancies, cost-cutting, efficiency drives and management restructuring may be old hat to the private sector, but the Treasury is only now getting its first taste of the medicine the Government has long prescribed for others.

The Treasury has just launched a fundamental review of its organisation and costs, one of a series announced by Michael Portillo last year to bear down on public spending. A preliminary report due in September is expected to identify ways to boost efficiency.

This may be only the first step. The Government is contemplating cutting the number of top civil servants by a fifth, and introducing individual fixed-term contracts.

The Treasury has called in Sir Colin Southgate, chairman of Thorn EMI, the entertainment and electronics business, to oversee its review, so that it cannot be accused of giving itself a clean bill of health while cuts are demanded from other departments.

Not surprisingly, some of the footsoldiers are panicking. Sir Terry Burns, the Treasury's permanent secretary and one of Britain's most powerful civil servants, has tried to reassure his staff with memos and meetings, including two uncomfortably hostile mass rallies of officials at the Queen Elizabeth II conference hall opposite Westminster Abbey.

But rumours still abound that the Treasury's management board has costed plans to strip out as many as 300 of its 1,400 employees.

Sir Terry dismisses that as 'pure speculation'. But he has warned involuntary redundancies may be unavoidable, something unprecedented at this level in the civil service. Individual skills, qualifications, seniority, attendance and disciplinary records would all be taken into account when selecting the victims.

'We are going to have to find productivity savings year in, year out,' says Sir Terry. 'I don't know whether there will be any redundancies or not. If there are any redundancies, as far as possible they will be voluntary.'

In a speech to the Durham Business School, he was candid about the damage the uncertainty had done to morale, speaking of 'unhappiness with many of the present arrangements that goes beyond concern about job security and prospects; the feeling of not being respected; of not enough being done to encourage co-operation and innovation. There is a feeling that we are bad at avoiding bureaucracy and having an open style of management. There is a demand for senior management to provide leadership and communication about the management changes that are necessary.'

These fears crystallised late last year when Sir Terry announced the department's byzantine management structure was to be simplified into six directorates. Two top jobs - international economics and financial services - were abolished. With a layer of management removed, senior officials suddenly saw promotion opportunities evaporate and their jobs began to appear insecure.

This process takes place amid logjams within the Treasury hierarchy. There are too many suitably qualified officials in their early to mid-forties to take Grade 3 jobs, which involve running teams of about 25 people. A 'board' to recommend promotions at the next lowest major grade is not being held because there are so few jobs into which successful candidates could be placed.

'People get frustrated if they get into their thirties and do not feel they have the right level of responsibility here. They feel they have to wait too long in the pecking order,' Sir Terry says.

Sir Terry claims the review is an opportunity to reform the Treasury for the better rather than simply to cut costs. He wants the Treasury to spend more time on key areas of policy and less time second-guessing the detailed decisions of other departments. He believes it is not well enough managed, that its people and resources are used too inflexibly. And he thinks that it is seen as remote, unlistening and uncommunicative by business, the public and the rest of Whitehall.

Sir Terry concedes that this cannot be painless and that his officials will have to endure more of the uncertainties and insecurities of life in the private sector: 'We will probably end up with some further slimming down.'

He acknowledges that Treasury officials - especially younger ones - desperately want more responsibility earlier on but are also worried they will not have a job until they are 60.

'It is just impossible to run an organisation in which young people can be put into positions of responsibility and then have that same number of people working here until they are 60.'

Sir Terry's reforms to the Treasury's structure have a long pedigree. In March 1992 a group of about 15 top officials held an 'away day' to discuss the department. Howard Davies, a former Treasury official then at the Audit Commission and now heading the Confederation of British Industry, made a presentation on organisation and external relations.

And as if this were not enough, the Treasury's building opposite the Palace of Westminster is crumbling and will need costly repairs. Sir Terry has a team trying to find the Treasury a new - possibly permanent - home. There are even wild rumours of exile to Canary Wharf, that 1980s property boom folly in London's Docklands. But while it might help Sir Terry with his cost savings, it would scarcely help morale.

(Photograph omitted)