The Liberal Democrats don’t understand growth
13 Feb 2026
This article was first published in CapX.
The Liberal Democrats have announced that they want to abolish the Treasury and replace it with a new ‘Department for Growth’, supported by a separate department for public spending. On the face of it, this sounds radical, even refreshing. Britain’s economy has stagnated for over a decade, productivity has broadly flatlined (especially in the public sector) and living standards have barely recovered since the 2007/08 financial crisis. If the Treasury really is part of the problem, why not scrap it?
But as with so many Lib Dem policy announcements, the ambition dissolves on contact with detail. Strip away the rhetoric and the proposal looks less like a serious growth strategy and more like a rebranding exercise, which leaves the party’s underlying policy instincts firmly intact. Simply having a department for something doesn’t make it so.
Setting out the plan, the party’s Deputy Leader, Daisy Cooper, said the new Department for Growth would be tasked with ‘boosting long-term prosperity, improving living standards and easing cost-of-living pressures’. The new department would take on responsibility for business and trade, while a separate department for public spending would be created to check the numbers and value for money. This, Cooper argued, would end the ‘doom loop’ of ‘short-term Treasury tax grabs’ and rid Britain of an ‘anti-growth Treasury’.
There is a serious argument buried there. The Treasury does exercise extraordinary power over the British state. It combines responsibility for macroeconomic policy, fiscal rules, budget-setting and spending reviews, all while delving into the minutiae of individual departmental expenditure. Such concentration of authority is quite unusual by international standards and has long been criticised for encouraging short-termism and institutional caution – just pick up any British political autobiography from the discount shelf of your local bookshop.
Treasury ‘orthodoxy’ has historically had the tendency to prioritise fiscal neatness over long-term growth, and its veto culture has repeatedly frustrated many an infrastructure project.
Furthermore, the department is clearly bloated, having expanded massively since 1997. Even since the last time the Lib Dems were in government, alongside the Conservatives in coalition, headcount has gone up by about 57%. In Q3 2015, there were 1,290 Treasury employees, in Q3 2025 there were 2,030.
In theory, separating economic strategy from budgetary control would improve decision-making. Other countries do exactly that. The United States, for example, splits responsibility between the Treasury and the Office of Management and Budget, which reports directly to the President. Much of Europe separates finance ministries from economics or planning departments.
So the idea that Britain’s growth problem is partly institutional is not fanciful. But institutions do not operate in a vacuum. They reflect bad political choices. And this is where the Lib Dem proposal collapses.
If the Treasury really is ‘anti-growth’, as Cooper claims, then the obvious question is what a genuine and effective pro-growth department and policy platform would look like. The answer, judging by the party’s 2024 manifesto – still the clearest statement of its economic instincts – is that the Lib Dems have no idea.
The Lib Dems’ 2024 manifesto is thick with measures that would have been rhetorically fashionable if they’d been announced a decade earlier. It proposes higher and more complex taxes on digital companies, despite repeated warnings that such levies deter investment and are often simply passed on to consumers. It also proposes expanding the British Business Bank so that the state-run ‘bank’ can ‘perform a more central role in the economy’, despite many of the businesses that seek funding from the institution doing so after being rejected by private sources.
It commits to an expansive Net Zero agenda without offering a credible account of how the resulting costs to industry would be offset. It supports tighter regulation across large swathes of the economy, from labour markets to planning, while offering little by way of serious supply-side reform.
None of this is accidental. It reflects an unfortunately common worldview that sees growth as something that can be magicked up by reorganising Whitehall, or gifted because you really want it and play nicely, rather than earned through the hard trade-offs of reducing public spending, cutting tax and slashing regulation. Changing the sign on the Treasury door does not change the fact that the Lib Dems have moved away from their Orange Book past, remain instinctively suspicious of profit and prefer redistribution to expansion.
Indeed, the contradiction is glaring. On the one hand, the party denounces ‘short-term Treasury tax grabs’. On the other, it advocates policies that would narrow the tax base and discourage investment, making the economy ever more dependent on a shrinking pool of mobile, high-net worth taxpayers.
Nor is it clear that the proposed institutional reforms would deliver the cultural break that Cooper promises. Simply transferring Treasury officials to a new Department for Public Spending risks exporting the very orthodoxy the Lib Dems claim they want to eradicate, all while needlessly upsetting the markets with fruitless churn.
That point matters. Britain’s fiscal credibility is fragile. Any major restructuring of budgetary functions would need to be handled with extreme care to avoid spooking gilt markets. As pointed out by Ambrose Evans-Pritchard, the borrowing cost on 10-year British debt is on a penalty premium over the equivalent of the US Treasuries or Canadian, Italian, Korean, Malaysian or Moroccan bonds. Any move to abolish the Treasury in this climate must be handled carefully, with a rigorous plan to ensure it’s worth the trouble afterwards.
Separating fiscal events from the Treasury also raises profound questions about where ultimate authority would sit. Would budget-setting move next door to No.10? Would a new Office of Budget and Management report to the Prime Minister? Or would a new spending minister effectively become a second chancellor in all but name? Cooper’s announcement raises far more questions than it answers. If the Lib Dems want to make good on their 2024 gains from the Tories, they’ll need to buck up their ideas on the fiscal responsibility front.
There is also a sense of déjà vu about the proposal. Cooper says that opening a Department for Growth in Birmingham would ‘send a strong signal’ about rebalancing the economy and closing the yawning gap between London and the rest of the country. This sounds mightily similar to the rationale behind the Department for Levelling Up, Housing and Comunities, renamed by Boris Johnson in 2021. Within three years, the Institute for Fiscal Studies (IFS) had deemed progress ‘glacial’, and that on many metrics it had actually gone into reverse. One also thinks of the dire straits of the Office for National Statistics ever since it relocated to Newport, which, like it or not, is not a magnet for elite talent.
The truth is that Britain does not suffer from a lack of growth rhetoric, but from an excess of anti-growth policies. High marginal tax rates, a labyrinthine planning system and endless red tape have combined to suppress economic dynamism for years. Addressing that would require political choices that governing parties of all stripes have shied away from in recent years.
None of this precludes reforming the Treasury. But reform must follow strategy, not substitute for it. Otherwise, the overarching risk is that Britain ends up yet again with the same policies, and the same stagnation, just administered by a shinier department with a more fashionable name.