Good housekeeping at the Treasury

IN THE Thirties, Stanley Baldwin remarked: 'There are three groups which no British prime minister should provoke: the Vatican, the Treasury and the miners.'

Well, it is hard to see John Major (or indeed Tony Blair) worrying too much about the policies of the Vatican; and the sad saga of the Eighties demonstrated how the power of the miners had faded. But up until yesterday's announcement of substantial cutbacks, the Treasury has, if anything, seemed more secure than when Baldwin was Prime Minister.

Now, however, the Treasury is doing something altogether more radical. In cutting itself back - it is shedding about a quarter of its staff - it is not just admitting that its role needs to change. This most important government department of all is tacitly confirming that the whole place of government in society is changing.

Any government intent on controlling public spending has to have a strong finance ministry, hence the great reluctance of governments to chip away at the Treasury, even when it is giving them trouble. So it has been left to the Treasury to chip away at itself. It is in good company: just about every large organisation in the country, from multinationals to clearing banks to local authorities, is seeking ways of slimming down. But as with all corporate restructurings, there are two questions that have to be answered.

One is: can we do this more efficiently? The other: do we need to do it at all?

In the first case, simple procedural changes can often make the organisation more efficient. Typically, by taking out layers of management tasks get done more quickly. The classic example is memo- writing: do papers for ministers really need to be rewritten three or four times, thereby reducing the job satisfaction of the person who drafted the original version?

Of course not - but this is precisely what does happen. True, the Treasury is better than most government departments on this score - for it is a relatively open culture where everyone is allowed to talk to everyone else, rather than having to send papers through intermediate managers - but people within it will readily admit that there is vast room for improvement.

The second question is more important, for it has a bearing on one of the great seminal issues of how developed countries should organise themselves: to what extent should governments withdraw from many of the tasks they took on over the past 100 years?

In deciding whether it should do things at all, the Treasury has gone for what arguably is the least radical option. It is keeping all its macroeconomic functions: it will still have ultimate control over other departments' spending; it will still run fiscal policy; it will still, in theory, have primary responsibility for monetary policy, despite the shift of power both to the financial markets and to the Bank of England; it will still worry about City regulation; it will still run economic forecasting (one function that many believe should be hived off).

What goes is the section that oversees Civil Service pay (that responsibility is being pushed out to the various departments, who will have more freedom in what they 5pay, provided they hit overall spending targets), and some of the detailed controls on how other departments spend money in a more general way.

In place of this detailed control will come a more strategic view. Up to now the message from the Treasury to departments has run rather like this: 'We hold the purse strings and we are telling you to spend the money in this way and that. Come and make your case to us by all means, but if you do not in the end do what we say, we will become extremely disagreeable about your plans in general.'

In future it will say something more like: 'We still hold the purse strings.

We will advise you not to cut back on spending there because if you do we believe this would damage the economy. Instead we suggest you look at your spending in these other areas. If on the other hand you can come up with better solutions which still protect the areas we are concerned about, then that will be fine by us. But if you make a mess of it, it will be your problem, not ours.'

Sceptics will wonder whether the habits of years can be quickly eroded to produce the necessary shift in attitude. But at least the Treasury is practising what it preaches: pushing power down to managers. In one sense it is trying to be an example for Whitehall in general, though it is scarcely in the vanguard of reform. The Inland Revenue is further down the road, and the Department of Transport has done a lot. On the other hand defence is only just starting, and other departments also have a long way to go.

The Treasury denies that its shake-up is for any reasons other than internal good housekeeping, but given its position at the heart of government, any change has a much broader significance. The Treasury is arguably the most important single element in a rethink of the role of the state.

This rethink is not just happening in Britain. Look around the world and it is quite clear that the growth in the role of the state, which gathered pace from about 1870 onwards, peaked in the Seventies. The retreat - the downsizing of government - has been most evident in the former Soviet Union and in mainland China, but it is also taking place in India, much of Latin America and parts of Africa.

True, there are some countries, the United States for example, where government is seeking to intervene more, not less, though it is not proving very successful. It is true, too, that in the European Union, in as far as power is being ceded by goverments, much is being passed up to the central bureaucracy rather than down to local or regional interests.

Viewed in a historical context, we are probably still at the early stages of a process which, 30 to 50 years from now, will leave the state with a much less important role in people's lives than at present. Already some of the things that governments sought to do 20 years ago seem absurd; for instance, the idea that our government should tell people they can only work for three days a week, or that they have no more than pounds 6 a week as a pay rise.

Head another 20 years forward and many of the things governments do now may seem equally odd. Many government departments may simply disappear.

But not the Treasury: governments will still need to tax and spend. We will surely, however, end up with an even more slimline version than was unveiled yesterday.