In 1905, after serving for 10 years in the House of Commons, McKenna became financial secretary of the Treasury, and in 1907 he was named president of the Board of Education. Appointed first lord of the Admiralty in 1908, he urged that 18 battleships of the Dreadnought class be built, 6 in each of the years 1909–11, in order to offset the growth of the German fleet. He was opposed in this by David Lloyd George, Winston Churchill, and others who wished to build fewer ships and spend more money on social-reform programs. McKenna prevailed, however, and 18 Dreadnoughts actually were begun by the end of 1911. In that year a dispute with the war minister, Viscount Haldane, resulted in McKenna's exchanging office with Churchill, the home secretary.

As chancellor of the Exchequer from May 1915 to December 1916, during the early period of World War I, McKenna was responsible for a 40 percent personal income surtax and a 50 percent excess-profits tax (both called “McKenna duties”) to sustain the war effort. He resigned when Lloyd George, whom he disliked, became prime minister. From 1919 until his death McKenna was chairman of the Midland Bank.