Tensions between the Conservatives and Liberal Democrats may create a "perfect storm" in Whitehall which blows the Government off course in 2013, according to the Institute for Government.
The Civil Service will have a vital role to play in defusing rows between the two Coalition parties as they lock horns during a public spending review and diverge ahead of the 2015 general election, the think-tank says.
Its warning came as David Cameron and Nick Clegg prepare to put on a show of unity on Monday, when they will launch the Coalition's "mid-term review" which spells out its policy agenda between now and the election.
Peter Riddell, the institute's director, said: "In the second half of a coalition's term the parties will want to show where they differ. This is especially true of the smaller party.
"The Civil Service's role will be tested this year and they will have to be flexible enough to handle the increasing gaps in policy positions between the parties and to act as an impartial adviser to both parties in the Coalition."
The institute, which has close links with senior Civil Servants, describes the mood in Whitehall as "fragile" as it juggles spending cuts and public sector reforms. "It is a high-risk strategy. The Civil Service will need to stay focused on this or risk losing the best staff at all levels, and look across [departmental] boundaries to make savings ahead of the next spending review," said Mr Riddell.
He called on ministers publicly to back those senior civil servants who achieve more effective services.
In a report to be published shortly, the think-tank will argue the challenges in the year ahead also offer "a perfect opportunity" for Whitehall to show its worth.
But it will urge ministers and officials to call a truce to end media "spats" between them which tainted their relationship last year. It will say: "Ministers have legitimate concerns about the quality of work for which they are held accountable, while civil servants often feel bruised by public and media criticism of continuing sharp cutbacks and big reorganisations."
Proposing a "new understanding" and more respect for each other's roles, Mr Riddell said: "Civil servants have to show they are adaptable and listening to ministers… Ministers must have faith in their top Civil Service teams and support them as they go through major changes."
The institute also called for an end to a damaging row over whether ministers should have more say over the appointment of their permanent secretaries, which has led to a breakdown of trust between them and their officials. Mr Riddell said: "There are strong arguments for a greater ministerial say but also dangers of divorcing ministers and their special advisers from the civil servants who are crucial both to decision-making and implementing policies."
Giving ministers a choice of suitable candidates approved by an independent panel would not compromise the impartiality of Whitehall, Mr Riddell argued. "Poor relationships can hamper a department's ability to work well, so it makes sense that the minister can work with their top civil servant," he added.
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