UK Politics

Former ministers reveal spending review tactics

As ministers tussle with the Treasury over cuts ahead of the spending review, former cabinet veterans tell BBC political correspondent Iain Watson about likely tactics.

Image caption Departments are locked in budget negotiations with the Treasury

This autumn, departments will be told to make a quarter of their budgets disappear over the course of a Parliament - a rare feat and very tricky indeed.

Like the Magic Circle, those close to the process are remaining tight lipped.

But former ministers who have learned some tricks are able to offer advice on tackling the Treasury.

No 11 Downing Street is giving ministers an incentive - the first to offer cuts will be invited to sit on a "star chamber" of senior ministers, passing judgement on their tardier colleagues.

'Back-seat drivers'

Lord Parkinson chaired such a chamber in the 1980s, under Margaret Thatcher, but said the Treasury did not like to use it frequently.

Instead it preferred to decide on cuts with departments, shutting out involvement from other ministers.

He warns that whichever party is in office, the Treasury believes it is in power - and exercises that power without responsibility.

Image caption Alan Johnson had to negotiate with the Treasury in various cabinet roles

"I always regarded them as a bunch of back-seat drivers. They know which direction - turn left, turn right - but if you follow their instructions and run into a tree, it's no fault of theirs."

In his day, ministers would never bid for 100% of the money they needed - they would bid for more.

During his stint as transport secretary, he upped the departmental bid to 105% of what was required because he had heard that the Treasury was taking a minimum of 5% off every spending submission.

Sir Malcolm Rifkind, who served in government during all 18 years of the last Conservative administration, urges those in office to "think laterally" when dealing with the Treasury.

Too early

As defence secretary in the 1990s, he was asked to make £800m of cuts.

Instead he surprised colleagues by offering up £1bn of savings - but on the understanding that the extra £200m would be recycled into new defence equipment.

He admits, though, that the scale of the current crisis might limit that approach, with only the NHS and the international development department given explicit permission to make financial gains from from any reforms they introduce.

But across the board the advice was loud and clear: Do not try to settle too early on the Treasury's terms.

The former Labour cabinet minister Alan Johnson describes the spending negotiations as a "game of poker... you have to know when to hold out, and when to fold".

"If you concede the arguments early on they will only come back for more, because that's the way the Treasury works," he said.

He reached a settlement on the education budget in the last government only the day before the pre-Budget report, in a phone call with the chancellor from the runway at Helsinki airport. A close Finnish indeed.

Lawson's law

Peter Lilley sat on both sides of the Whitehall divide in the 1980s and 1990s, holding two separate Treasury posts before being put in charge of the biggest spending department of all - social security.

He remembers "Lawson's Law", named after the former Conservative chancellor: 'Nigel Lawson took the view that sooner or later departments find a way to manipulate any system of public expenditure controls to their own advantage - so he believed it was important to change the system every few years - if necessary returning to an old system they have forgotten how to manipulate."

Image caption Nigel Lawson suspected departments manipulated the spending rules

But not all negotiations are played behind closed doors. Sometimes ministers go public.

Defence Secretary Liam Fox has made it clear he believes that the upfront, capital costs of renewing the Trident nuclear weapons system should not have to come from his departmental budget - only the running costs.

Chancellor George Osborne has also made his position clear - the defence budget should pay for Trident. All of it.

Sir Malcolm Rifkind has some sympathy with Dr Fox.

He believes any difference of opinion may have to be settled at a higher level: "Either there is a fundamental national interest in maintaining our nuclear weapons or there isn't. That can't be for the Treasury to decide.

"Any defence secretary should ensure that the matter is discussed by cabinet as a whole; and not simply be the consequence of a financial decision argued out between himself and the Chancellor of the Exchequer."

'Arrogant'

But former ministers believe spats should be kept to a minimum.

Politicians who carry out their negotiations in public often antagonise the Treasury.

Even if it appears to retreat under fire, the bean counters will regroup and ultimately win the spending war.

Some ex-cabinet ministers say it may be time for the spenders and the slashers in government to sue for peace, or at least declare an armistice.

Labour's Alan Johnson remembers some Treasury officials as "arrogant" but says it is important to remember they are pursuing the government's priorities and a constructive relationship is required.

The former Conservative Party chairman Lord Parkinson adds: "I think this is far too serious a time to be playing games.

"The key is for them to remember they are all on the same side and to be straight with each other. "

But he concludes, with a broad grin: "That may seem like strange advice, but if they do, I can assure you it will be one of the first times - ever."

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