Treasury morale 'hits bottom'

Increased workload and exclusion from the levers of power has left the Chancellor's civil servants with a post-electoral hangover

Morale among senior officials at the Treasury is dangerously low, after fears over what is perceived as the tight grasp on the reins of policy by a coterie of personal advisers brought in by Chancellor Gordon Brown, according to Whitehall insiders.

In the build-up to the election, Mr Brown was assisted by a close-knit trio, chief among them Ed Balls, a former Financial Times leader writer, Ed Milliband, another economics specialist, and Mr Brown's long serving press officer, Charlie Whelan.

"The most salient point to emerge," said one Treasury insider, "is a division between the senior-level and middle-ranking civil servants at the Treasury. Senior civil servants now have a less exclusive role in shaping Labour policy."

By contrast, middle ranking civil servants in the Treasury are enjoying a new lease of life. New Labour has unleashed a flood of new legislation, with a new Act to approve the new power of the Bank of England to set interest rates setting expected within the next month or so. "The sheer volume is providing a different response from them, than in the more moribund days of the old regime," said the source.

Several developments, however, have alienated senior officials. The call to hold a snap mini-Budget, created an enormous burden of work. It was the extra workload which forced a postponement of a Budget until 2 July. The workload, say many, has not abated since.

Some observers have commented that Sir Terence Burns, the head of the Treasury, has looked "ground down" with the pressure of work.

The Treasury lost its most direct handle on the levers of power when it was stripped of the responsibility to set interest rates. While this had been a political function of the Chancellor, the Chancellor had formerly been guided by the Treasury. Many Treasury officials now complain they can only make an input through fiscal policy. They also argue that this runs the risk of splits opening up between the Bank of England, in charge of monetary policy, and the Treasury.

However, most independent economists would point out that the Treasury's record in helping to set interest rates has been decidedly mixed, with the final humiliation, Britain's shock exit from the Exchange Rate Mechanism in 1992, when interest rates soared to 15 per cent.

"The Treasury and the Chancellor were always subject to the electoral cycle, rather than an economic cycle," said one economist who preferred not to be named.

Some economists at the Treasury are also concerned the removal of its interest rate-setting powers, is a prelude to the introduction of European Monetary Union for the UK.

One senior source familiar with developments, views the increasing politicisation of the Treasury with alarm: "I find it a very unhealthy situation." There is also a feeling that officials have been pushed around, including over the decision that the Treasury will take on responsibility for over-seeing the creation of a new super regulator for the City.

One former Treasury official said: "A lot of them will be dismayed at the control exercised by Gordon Brown. Treasury officials are caring, intelligent people, and they feel more vulnerable than many."

A spokesman for the Treasury said that any discussion of low morale was incorrect and misguided.