Researchers at the University of York have co-authored a new study finding that the Treasury’s so-called “iron grip” on public spending is a myth.
The research, published in a report and book titled The Myth of Treasury Control and funded by the Nuffield Foundation, found the Treasury had little understanding of how money was spent and managed across vast swathes of state spending. This was especially true in complex, demand-led areas with the most entrenched problems, including the study’s three case study areas: homelessness, prisons and special educational needs. Interviewees repeatedly told researchers that the Treasury often acts only “when the wheels have fallen off.”
The University of York researchers, working alongside colleagues at the universities of Cambridge, Manchester and Bristol, are calling for devolution of significant areas of spending to reset the fractured system of public spending control. They also propose that the Treasury should be split into an ‘economic department’ responsible for taxation and macro-economic policy, and a ‘budget department’ responsible for public spending allocation and overseeing departmental performance.
Professor Martin Smith, from the University of York’s Department of Politics and International Relations, said: “At a time when the new Prime Minister, Andy Burnham, is promising to break the iron grip of the Treasury through his devolution agenda, this research demonstrates the ways in which the Treasury’s attempts to control expenditure in the context of an increasingly fragmented policy process leads to both poor outcomes and weak financial control.”
He added: “We looked at Treasury control in the context of prisons, special educational needs and homelessness, and demonstrated that the Treasury needs urgent reform and needs to move away from a failing system of highly centralised financial control.”
Vulnerable to crisis
The report reveals an imbalance at the heart of the UK’s public spending system. It finds substantial over-control in the way Treasury spending teams plan and approve expenditure, with highly interventionist and restrictive processes that slow decision-making and constrain innovation. At the same time, large areas of public spending remain under-controlled at the point of delivery — how money is used on the ground is often poorly understood, inconsistently managed and vulnerable to crisis, particularly in the complex, cross-cutting public services examined in the study.
Professor Dave Richards, from the University of Manchester, said: “Our findings provide a strong evidence base for many of the reforms that the new Burnham Government is pursuing. In particular, we show that incremental adjustments cannot fix a structurally incoherent system.”
He added: “The UK cannot improve outcomes, invest strategically, or achieve value for money until its spending system is redesigned to reflect how public services are actually delivered.”
The findings highlight a system where central oversight is tight on paper but weak in practice, exposing a gap between Treasury-driven control and the realities of frontline delivery. The report also shows that fragmented responsibilities across Whitehall, local government and public agencies create incentives to cost-shunt between departments and organisations, rather than working towards shared outcomes. Welfare reforms designed to reduce central government spending, for example, have shunted costs onto local authorities, increasing homelessness pressures and reducing resources for prevention.
Collaboration not control
Professor Diane Coyle, a former Treasury economist and co-author of the report, from the University of Cambridge, said: “Our suggested reforms are intended to align the management of public spending with the realities of a modern, place-based state built on collaboration rather than central control.”
She added: “The evidence points to the need for greater devolution, underpinned by clearer responsibilities, stronger local accountability and a funding framework that supports long-term decision-making rather than short-term budget cycles. The relationship between central and local government needs to be reset through greater cooperation and co-design, simpler governance arrangements and constitutional protection for local government.”
Researchers conducted 154 interviews, including with former chancellors, Treasury officials and senior civil servants, and traced spending programmes from Treasury sign-off through to delivery by reviewing government papers and audit reports.
