Introduction

The Treasury's spending review of 2002 was Labour's third spending announcement, following those of 1998 and 2000, to confirm real-terms increases in non-cash social policy going way beyond those thought sustainable in the previous 25 years. Despite uncertainties about the ability of the British economy to sustain these rates of growth, Gordon Brown delivered the high-spending approach and redefined ‘investment’ away from capital spending to whatever current spending he chose to define as socially valuable. As well as spending plans, the review consolidated a new control regime – instead of the old annual cycle, a biennial cycle setting plans for three years and so superseding the final year of the old plans. The way that the plans were determined confirmed the dominance of the Treasury in the UK core executive. Two continuing Treasuryrun initiatives, the welfare-to-work ‘New Deals’ and tax credits for work, pensions and childcare, extend means-tested benefits to most of the population and implicate the Treasury in the details of social policy.

Alongside investment is ‘reform’, New Labour's big idea of public service agreements (PSAs) as initially set out in two White Papers both entitled Public services for the future: Modernisation, reform, accountability (Cm 4181, 1998, and Cm 4315, 1999) and revised alongside the spending reviews of 2000 and 2002. The PSAs express the new contractual relationship with spending departments in which reform, modernisation and service delivery are expressed in negotiated objectives and targets.

This chapter attempts to locate the process and outcome of spending review 2002 in the history of Treasury control in Britain and our understanding of the balance between spending commitment and policy success. It reviews the place of Gordon Brown in the history of the development of Treasury power and asks whether the spending increases can deliver their objectives – the ‘invest’ side – and evaluates the PSAs and the lower-level service delivery agreements and the widespread scepticism they have encountered – the ‘reform’ side.

Gordon Brown in the Treasury

Much academic and especially journalistic commentary on the Treasury is critical of its controlling tendencies, but an alternative view (developed in Deakin and Parry, 2000) suggests that its informed involvement in social policy issues should be developed in order to balance its preoccupation with spending control. Gordon Brown, Chancellor of the Exchequer since 1997, has promoted this perspective.