Bronwen Maddox: A successful Spending Review needs to push through the Brexit fog

Written by Bronwen Maddox on 12 July 2018 in Opinion
Opinion

It might not yet top the government’s priority list, but no one should underestimate the challenges of the next Spending Review

The NHS’s £20bn “birthday present” has helped trigger it: cabinet ministers are jostling in public for more cash. They and their officials are focusing on the Autumn Budget – and the Spending Review planned for next year too.

The Institute for Government is now working on a project about how best to run that Spending Review and about the management of public spending more generally. What counts as a good review? A recent high level round table discussion we held arrived at some clear ideas. It needs to reflect the government’s priorities, and convey them to the public. It needs (of course) to “add up”, two short words for the exercise that takes much of the effort. And it needs, in the words of one respondent, to give ministers “a clear sense of the line between fat and muscle”.

If it doesn’t do those three things, it would generally be thought to have failed. But beyond that there are other goals at which many think the Treasury and departments should aim, even if they can’t get there in one bound. One would be a review that encourages efficiency and supports transformation – although there are differing views on how well reviews can actually be used to support transformation and few would advocate focusing on more than a few big ones at once.

“The 2010 Spending Review benefited from a sense of urgency in the wake of the financial crisis; the narrative of the 2015 review was more strained. Now, it is harder still”

Other aspirations include improving the Treasury’s understanding of Whitehall departments and frontline public services – of the actual impact on the ground of budget decisions. Many have talked to us for years of their concerns about the rate of turnover of Treasury staff preventing the accumulation of expertise (we have a separate project underway on turnover, pay and promotion structures in the civil service). Finally – again, a longstanding goal of the institute – many in parliament as well as Whitehall argued for an improvement in departments’ financial accounts that would enable both better dialogue with the Treasury about the impact of budgets, and something more resembling performance management by the Treasury.

The first point of all – the political narrative – may be the hardest. The 2010 Spending Review benefited from a sense of urgency in the wake of the financial crisis that gave a coherence to the plans. It was the start of austerity; cuts were comparatively easy to make at that point, coming after a period of much greater spending. As our Performance Tracker report on public services shows, for some years public services generally managed to keep up both output and quality with smaller budgets. Then the effect of cuts began to be clear; prisons, health and social care are examples. The narrative of the 2015 review was more strained, as a result.

Now, it is harder still. The government wants to raise spending in some areas – as it has just done with the NHS. It will need to save in others. Meanwhile, the uncertainties of Brexit hang over it all. How long a period should this review cover – four or five years, or only one? What assumptions about economic growth are appropriate? (It would help if the government published estimates of the impact of Brexit, as it has promised it will do so before parliament votes.) It is hard, too, to judge the resources that different departments will need without knowing the shape of the exit and future relationship with the European Union.

The single factor that would do most to help make this Spending Review a success would be a narrative that punches through all the Brexit fog, and sets out the government’s thinking on the kind of country Britain will be and its relations with the world.

Other big changes will happen during this period. Local government is heading towards being financed purely by local taxes, but central government has not yet made clear exactly how. And if the period covered is longer than four years, there will be a general election; even if it isn’t, one could still happen suddenly.

These are big areas of uncertainty. There is not much time in which to carry out a thoughtful review, and the Brexit timetable complicates all calculations. All the same, it would be a missed opportunity if this review did not try to capture some of the opportunity for change.

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Bronwen Maddox
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Bronwen Maddox is director of the Institute for Government

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