The new National Economic Council has been the focus of an intense demarcation battle in Whitehall about who determines economic policy. On one side are 10 Downing Street and the Cabinet Office, seeking closer, high-level co-ordination. On the other is the Treasury, which has resisted encroachment upon its control of key taxation and financial decisions. The result has been a carefully negotiated compromise.

It is easy to dismiss the council as largely a propaganda exercise, a revamped Cabinet committee with a grandiose title and wide-ranging remit, surrounded by all the melodrama of an emergency group. In one sense, it is typically Gordon Brown: a belief in announcing changes in machinery of government to signal new policy priorities. The council includes two thirds of the Cabinet, Stripped of the glossy packaging, the aim is to cut through inter-departmental boundaries. But the council will not be an economic war Cabinet deciding big fiscal issues, or handling the banking crisis. The Treasury is not going to allow even a grand-sounding national council to interfere in tax and spending.

After lengthy negotiations that would have made a wonderful episode of Yes, Prime Minister, the Downing Street announcement said in terms highlighted by the Treasury that “Budgets and Pre-Budget Reports will continue to be handled by the Chancellor of the Exchequer in the usual way”. So no sharing of Budget secrets. Moreover, “financial stability issues are addressed through the existing standing tripartite arrangements”. Hence, the key meetings this week on the bank rescue were not at the new council, which was merely kept up to date on Monday and Wednesday, but in small groups involving Mr Brown, Alistair Darling, Mervyn King and Lord Turner of Ecchinswell, the chairman of the Financial Services Authority, plus officials.

The new council has a more limited, but still important, role to judge by its first two meetings: to come up with proposals to ease the burden of the credit crunch and the recession. It is about micro, rather than macro, policies. For instance, during Prime Minister’s Questions on Wednesday Mr Brown announced action to speed government payments to small and medium-sized businesses to within ten days of being invoiced. This is intended to ease the cash-flow problems of such businesses resulting from increases in the number of late payments. This decision emerged from that morning’s meeting of the council.

Proposals emerge from a Senior Officials’ Working Group, chaired by the Cabinet Secretary and the Treasury Permanent Secretary, which meets today in advance of another meeting of the council on Monday. The agenda includes proposals to improve the working of the labour market, since, despite rising unemployment, there are still large numbers of vacancies. The council is also looking at how to help business by phasing in new regulations more slowly. Measures to stimulate the housing market and ease energy fears are in the pipeline.

There is a danger of initiativitis from the two-meetings-a-week pace and high profile. Treated more modestly, the council could help by simplifying decision-making, but don’t expect much more.

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