How team Darling must up its game

The Treasury was once regarded as the Rolls-Royce of government departments, a machine that runs so smoothly that the only sound you'll ever hear is the ticking of the clock on the mantelpiece in the elegant quietude of the permanent secretary's office. Not so today. Now the department resembles nothing so much as a car crash: the monetary, fiscal and social policy objectives it set itself lying mangled and twisted by the side of the road, the driver asleep at the wheel.

Inflation won't be back on target until at least 2010; the fiscal rules will be broken; all those successive quarters of growth will come to an end; the targets for reducing child poverty will be missed; we have a return to "boom and bust". So much for the "framework for stability".

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The Treasury said recently that "over the last decade there have been a number of developments which have given the Department a more strategic role" – something of an understatement.

Like the now dismembered Home Office before it, some are wondering whether the old machinery is still "fit for purpose". Observers wonder whether the bright young people who staff the Treasury these days are up to the challenges of stagflation and the credit crunch. Critics say that the Treasury tries to do too much, and should do less, but do it better.

If, as the polls suggest, George Osborne becomes Chancellor in a Conservative government, there will be blood. Mr Osborne said yesterday that he would radically restructure a "rather dysfunctional" Treasury.

"Having spoken to a lot of former Treasury civil servants, many of whom worked under the Brown regime, that's their assessment too," he said. The shadow Chancellor argues in particular that the Treasury's role in administering tax credits was a mistake. The talk again is of breaking up the department, perhaps taking its public finance, economic and regulatory functions into separate ministries and agencies.

The Treasury has always managed to beat off such bureaucratic assaults in the past. The Wilson government in the 1960s tried the shortlived Department of Economic Affairs, while Michael Heseltine's pipe dream of a powerful Department for Trade and Industry in the 1990s failed to come to much. But such successful rearguard actions were executed from a position of strength. Gordon Brown left the Treasury with an unfortunate legacy. It was Mr Brown's imperial power base. The placement of cronies such as Harriet Harman in "Brown departments" was one expression of that; a succession of Comprehensive Spending Reviews that probed every cranny of the public sector and the clunking fist of continual revolution were others.

It was from this that Mr Brown gained his fearsome reputation for Stalinist drive and determination. A former permanent secretary at the Department, Andrew (now Lord) Turnbull, who accused Mr Brown of a "very cynical view of mankind and his colleagues".

"He cannot allow them any serious discussion about priorities. His view is that it is just not worth it and 'they will get what I decide'. That is a very insulting process. Do those ends justify the means? It has enhanced Treasury control, but at the expense of government cohesion and any assessment of strategy. You can choose whether you are impressed or depressed by that, but you cannot help admiring the sheer Stalinist ruthlessness of it all."

The problem was that this approach left the Treasury with a chronic problem of overreach. Another downside of Mr Brown's very personal control was that as the formidable collection of individuals who formed his kitchen cabinet gradually left, the Department became the weaker for it.

Once there were celebrated and powerful names at the top: Ed Balls, Brown's long-time adviser and now Schools Secretary; GusO'Donnell, the well-regarded Treasury permanent secretary taken off to Number 10 in readiness for Mr Brown's arrival there; and Mr Brown's legendary "door-keeper", Sue Nye, wife of the ex-BBC chair and Goldman Sachs economist Gavyn Davies. Even Charlie Whelan, the famous spin doctor who made the mistake of himself becoming "the story", was better able than most at fighting the Treasury's corner.

The personnel today may be just as brilliant and well-connected, but their reputations tend not to go before them. Few outside Whitehall know much about Nick Macpherson, who has been permanent secretary since 2005. He has gained a name for being condescending to MPs on the Treasury Select Committee, but, given the calibre of some of them, that's not such a crime. Such leadership as he offers may be summed up in this quote: "We recognise that a strong internal culture has the potential to impact both positively and negatively in our dealings with stakeholders."

In its "capability review" last year, the Treasury conceded: "We also recognise that we have not taken a systematic approach to managing change in the department and that this has contributed in part to our lack of success in achieving change in the past."

The upper reaches of the Treasury are hideously Oxbridge; every one of the top officials went to Oxford or Cambridge, as did almost all of the ministers and special advisers (the Scots contingent being exceptions).

Most are tediously typical of the new political class, and few have seen much of life outside the Westminster village. The ministerial team is relatively new, and are earnest rather than sparkling. Mr Darling's latest special adviser, the former Herald journalist Catherine MacLeod, is fresh in as well. The civil servants at the top of the department are also on the young side. They may be brilliant, but few have much memory of the last recession, or any great exposure to the City or the financial markets. Compared with some of the lifers at the Bank of England, say, or in journalism, the folk memory of the Treasury seems a little short.

Critics complaint that the Treasury seems to have taken its eye off the main instruments telling it how the economy is performing. Those at the top of the Treasury may have become too stretched, by the Treasury's "mission creep" into areas traditionally left to other departments, and by the wheelbarrow of problems that faces them every day, especially the toxic saga of Northern Rock.

John Kingman, the current second permanent secretary, the number two at the department, was put in charge of sorting out the Rock, at a time, last Autumn, when the Treasury was completing its Comprehensive Spending Review and preparing for Mr Darling's first pre-Budget report. That latter exercise was also hardly a case study in calm, deliberative decision-making. It coincided with the famous "election that never was".

Even before then, Mervyn King, Governor of the Bank of England, expressed his frustration at the inability of the Treasury team's political leadership to come to a swift conclusion on a timely overhaul of the regulatory system for failing banks, though Mr King has since disclaimed those reports.

Even so, relations with the Bank are not as intimate as they might be. Very senior sources in the Treasury admit that officials were badly stretched last autumn, and that the necessary expertise was not readily to hand during the height of the credit crunch/Northern Rock crises.

It was unfortunate that their troubles came in such hefty battalions, but the suspicion is that the Treasury might have been better placed to deal with such problems.

Perhaps the most depressing aspect of the Treasury's current plight is that it has given itself "Treasury values", what the late Alan Clark might have termed "the usual public sector wank". The values are: "Challenging. Appreciative. Collaborative. Open". That must raise a hollow laugh around Whitehall.

Treasury ministerial team short of experience

Apart from Alistair Darling (57), a former chief secretary, the Treasury's ministerial team is a little short on experience, and few, Mr Darling included, have made much impression on the public mind, business or the City. Except possibly negatively.

The fuss over the 10p rate of tax, the non-doms fiasco and the U-turn on inheritance tax have combined to present an image of incompetence that has given the Tories a lead in the polls on economic policy for the first time since Norman Lamont stalked the Treasury's corridors.

The Chief Secretary, Yvette Cooper (39), a former Independent journalist, runs the risk of wicked people thinking she only got where she is today by being married to fellow cabinet member Ed Balls. She had previously languished in a succession of dull junior ministerial jobs under Mr Blair. Maybe she is Mr Balls' spy in MrDarling's cab these days: everyone seems to assume that "Ed" will be taking over in due course.

Jane Kennedy (50) was recalled from the backbenches to be Financial Secretary to the Treasury, as was Angela Eagle (47) to be Exchequer Secretary. Kitty Ussher (37) seems to suffer from an excess of partisan zeal, having once written that "I very much hope that we will never have another terrorist atrocity. But if we do, and if it happens because the police have not had sufficient time to accumulate enough evidence to charge the perpetrators, then the Tories, the Lib Dems and our own rebels will have blood on their hands". She's got potential.