In the Summertime: The Treasury’s quiet quest for narrative

By Evan Verpoest

The newly-appointed Chancellor greets James Bowler and Beth Russell, the Treasury's top civil servants.

Whilst the office of Chancellor of Exchequer comes with many unique trappings, a rather unorthodox one greeted Rachel Reeves when she entered the Treasury for the first time in July 2024—a urinal. Despite being a rather unusual perk of any office, the symbolism of the porcelain prize was not lost on the first female Chancellor. So naturally, one of her first asks of Treasury civil servants was to have it removed. 

But apparently, it’s still there. Because it’s listed and would cost £8000 to remove. So the first female Chancellor of the Exchequer, who pledged to “break glass ceilings” for girls and women in politics, has a urinal in her office.

The story is amusing, but serves as a microcosm of many of the Treasury’s problems over the last year. There are, of course, a very wide berth of views on what Reeves has done right, (moreso) what she has done wrong, and how to fix it—but this is not the article for that. Whilst rhetoric, actions and intention have been present since before the election, HM Treasury have spent most of the year with it’s hands bound behind its back, unable to achieve it’s goals because of, like the urinal, two main problems: red tape and money. 

And as the leaves turn brown, money will become the focus again, with all eyes on the Budget. It is a weird balancing act for the governing party in having to both navigate conference season and lay the groundwork for the coming political year, yet also keep the biggest feature of the coming year under wraps. But Budgets are not just written in the Chancellor’s office. They are a Treasury-wide offensive, compromising swathes of ministers, civil servants, and importantly, advisors. 

One of the Chancellor’s first acts was to set up a “Council of Economic Advisors”. A formalised sounding board of SpAds, the institution somewhat mirrors the collegiate style of governing that the Bank of England Monetary Policy Committee utilises. Of course, formal power sits with Reeves, but she does not have a tendency to railroad decisions. And if she does, it is well hidden—especially in the post-Tom Scholar era. 

Yet in recent weeks, there has been a significant deficit of advisory power across government. LSE professor John Van Reenen, who heads the committee (and is not remunerated), has reportedly cut his time at the Treasury to a single day a week. Anna Valero, who served on the committee has too chosen to return to LSE full time, leaving Reeves with significant gaps in her advisory committee. 

Their departure also exposes a source of tension with Number 10 over economic policy as well. Van Reenen had previously strongly advocated (in academia) for the UK to rejoin the EU single market, as well as investment in green technology to boost the economy. Number 10 has ruled out the former, and is increasingly lukewarm on the latter. 

Indeed many of the decisions taken by the Treasury put it on a collision course with those inside Number 10. The scrapping of the non-dom tax was apparently strongly opposed by Starmer’s business advisor Varun Chandra. Chandra carries significant weight within Downing Street and has cemented himself within the inner Number 10 circle as having the ear of the PM. He established particularly close relations with US Secretary of Commerce Howard Lutnick, as well as defused business anger over budget tax rises. Many of the economic lacerations that Starmer has dodged from across the Atlantic are attributed to Chandra’s work—and the government’s conflict between academia and market-oriented pragmatism is not one limited to policy in the Treasury.

What is more, Number 10 is reshaping the approach it takes to economics. Fiscal decisions such as welfare reform and winter fuel allowance have twice left Starmer’s inner circle strongly blindsided, and it is no secret that in Whitehall that he is seeking an heavyweight economics advisor. Further weakening government’s advisory capacity was the departure of No 10’s advisor Ravinder Athwal (who was critical to the manifesto), and took on an economics brief in Downing Street. 

Reeves’ political advisorship also proves unique. Her Director of Communications Ben Nunn is a close ally of Starmer, and a rare member of his 2020 leadership campaign for which he did the same job. The Chancellor’s chief political strategist Matt Pound is a Starmer loyalist, who worked closely with McSweeney and the party machine during the election campaign. The proximity of the Treasury’s political operation to Number 10 alleviates any concern of a Brownite-style Whitehall insurgency, yet is also emblematic of a cross-Whitehall failure to ‘sell successes’ that many in the government feel they have achieved—a conclusion drawn at a Cabinet Chequers away day. 

Much of the evidence for criticism levelled at Reeves has been the rising cost of borrowing. Curiously absent from this however, has been the evidence of a significant increase in spending—which serves as the best piece of evidence to write a narrative of “Reeves-onomics”. Indeed, public opinion and the media seem to regularly conflate Labour’s manifesto pledges and the new fiscal rules. They are markedly different. The former involves the famous pledge not to raise income tax, VAT or National Insurance, aka ‘taxes on working people’. Yet the fiscal rules, written into budget-crafting, have significantly changed the UK Treasury outlook, and are a significant part of the story the Treasury should be telling.

Reeves’ rewrite of the fiscal rules should negate any argument that she is ideologically in favour of shrinking the state, which she set out in her 2024 Mais Lecture and subsequent post-election rules-change. Since taking power, she has moved to scrap a 3% of GDP cap on budget deficits (inclusive of day-to-day and capital spending), instead mandating a budget surplus of only day-to-day spending. This opens up significant breadth for capital spending to increase, by removing the past incentive for it to be cut to fund increasing day-to-day (resource) spending against a now-changed 3% deficit limit. Demonstrably, Reeves' belief in the power of state investment is clear.

Thus much of the 'belt-tightening' rhetoric over Reeves’ 'austerity-lite' policies relies on scrutinising a reduction in budget increased for only half of her portfolio: day-to-day expenditure (Resource Department Expenditure Limits, or RDEL, and the more fluctuating resource Annually Managed Expenditure, or resource AME). Contrastingly, capital spending and investment (CDEL, and capital AME) have significantly risen. An injection of over £113 billion into new infrastructure and projects demonstrates a break from the past, made available through a technical redefining of UK balance sheet liabilities now classed as “net financial liabilities” as opposed to simply “net debt”. 

And the markets didn’t really move. Despite Reeves pumping the economy with over £100 billion in investment, the rises in borrowing costs were related to day-to-day expenditure and global shifts rather than the increase in capital spending, demonstrating the markets’ acceptance of her rule changes.

That is not to say that Reeves’ decisions are uncontroversial. She has received cross-spectrum criticism for tax decisions seen by some as too little, others too much, and that her tighter day-to-day spending rules and pledges have put her in a bind of her own making, leaving her little headroom, and not doing enough to kickstart growth. Yet a significant part of Reeves’ brief as Chancellor appears to have gone generally unnoticed by both her supporters and her detractors, generally a sign in the Treasury that something has worked—in a political climate where all politicians need all the wins they can get. 

It is naïve to assume that tight-lipped ‘no comment’ answers to press questions will provide proper fruit for fiscal speculations over what is to come. Instead, the first indicator should be *who* is involved?

And secondly, how, a year on, has the Treasury tweaked the story it is telling, and selling? As the Chancellor returns to consider a plethora of painful options for her autumn budget, it is more pressing than anything else to consider who in the coming weeks she chooses to surround herself with, and whether she takes to heart the Number 10-led ache for rapid change. 

Personnel and governing strategy shifts are underway in government already. Several shakeups are rumored, including restructuring of Morgan McSweeney’s role as Chief of Staff to allow for greater focus on politics over delivery. This includes the introduction of a senior official into No 10 to aid with the latter (Former Home Secretary Jacqui Smith is rumored to have been approached). What is more, musings of a middle-level reshuffle as well as a new No. 10 Permanent Secretary to drive McSweeney’s “govern like insurgents” strategy around the “insipid” Cabinet Secretary have only grown.

In her Mansion House speech shortly after the spending review, the Chancellor joked that when a primary school girl asked her what her dream job was, she would be forgiven for saying “anything but the Chancellorship”. But she didn’t. Instead, she made light of the fact that, in the face of significant hardship, she has gritted her teeth and fought to push on. 

This coming year, the Treasury must build the team to convince the electorate to do the same.

Image: HM Treasury/Flickr