Sky Views: With this budget, the Treasury has lost the war

Ed Conway, economics editor

The Treasury has lost the war.

That is the most significant lesson from the Budget. It is, in a sense, even more important than the question so many economists are fixating over today: whether austerity has ended or not.

For years, if not decades, the Treasury and its officials have had a profoundly important influence on UK economic policy.

More than any other department – more even than 10 Downing Street – the Treasury has been the ultimate arbiter on decisions affecting the public finances.

During the Gordon Brown era it was the Treasury which took the final decisions over taxing and spending.

Same thing when George Osborne was Chancellor. When it came to big spending decisions, tax plans and even social policy, the buck always stopped at 1 Horse Guards Road – and this degree of influence became baked into the system.

The Treasury view, such as it was, was that what mattered above all else was sound money.

It’s probably going too far to suggest the Treasury was the main engine behind austerity; it is more pragmatic than that.

But certainly, if this country unexpectedly ran into a pot of money, the Treasury view was that the majority of that money should be pocketed – pumped back into the Exchequer to be saved for a rainy day.

When Theresa May became prime minister there was always a suspicion that the era of Treasury dominance in Whitehall might be about to come to an end, yet the dominance of the Treasury View proved more stubborn than expected.

The priority in each of the Budgets and statements since she became PM was about prudence and responsibility.

The long-held ambition, adapted from the Osborne era, remained that eventually the government should seek to eliminate the deficit entirely – albeit a bit later than Osborne had intended.

In this Budget, that was all thrown aside.

The Treasury stumbled into a £68.5bn pot of gold (higher tax revenues forecast over the coming years).

Rather than pocketing this money and putting it towards paying off the national debt, the Chancellor spent 97% of it.

This is an incredibly important decision and betrays a significant shift in thinking. The priority is no longer balance but spending.

Of course, that wasn’t the only break with the past. Osborne’s cuts to universal credit were mostly reversed.

Philip Hammond junked not just PFI but PF2 – the “improved” private finance initiative successor created by Osborne.

The personal allowance was increased to £12.5k – ending a coalition era push. A lot of baggage from recent history was thrown out of the window, and the result was, to my mind, to formalise the biggest leftwards lurch of the Conservative party in many years.

Yes, you could make the point that the major giveaway in the Budget – the extra £20-30bn for the NHS – was already preordained, having been announced by the prime minister months ago.

You could argue that the path to this Budget was laid down back then.

But you need to recall that the Treasury always had the option of raising taxes to try to meet that commitment. It could have cancelled the forthcoming corporation tax cuts or frozen the personal allowance rather than raising it.

But rather than acting defensively against the prime minister, the Treasury went all in with her.

Perhaps it could never have resisted the political pressure. There may be an election next year. No-one knows what will happen with Brexit. To some extent, this Budget had a slight air of unreality about it, given no-one much expects all the protagonists to be in office in a year, let alone five years’ time.

Still. The Treasury View – the dominant attitude that prevailed in Whitehall for many decades, appears to have dissolved from view. For the time being at least.

Sky Views is a series of comment pieces by Sky News editors and correspondents, published every morning.

Previously on Sky Views: Greg Milam – Who can stop Donald Trump in 2020 election?

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