Think tank calls for accounting shakeup to boost preventative spending

Creation of “PDEL” category for departmental budgets would ring-fence allocations and drive innovation, Demos says

By Jim Dunton

05 Oct 2023

Cross-party think tank Demos has called for the creation of a new category of departmental spending that would protect funding earmarked for preventative projects and make it easier to track the results achieved.

It says the current system of dividing departmental spending into capital budgets and resource budgets – CDEL and RDEL, where “DEL” stands for departmental expenditure limit – is an obstacle to effective preventative spending.

In a paper published this week, Demos says late intervention to treat recognised problems costs the UK economy at least £22bn a year, but the current accounting system encourages politicians to cut long-term investment that could bring benefits in the face of short-term pressures.

Demos said the current scandal over the failure to replace life-expired reinforced autoclaved aerated concrete in schools and other public buildings was one example of this short-term approach. It added that chancellor Jeremy Hunt had acknowledged that funding set aside for NHS transformation was diverted from “really important prevention work” when he was health secretary in 2018.

Demos is lobbying for a third category of spending to be introduced that would be known as PDEL, or prevention departmental expenditure limit, which would sit alongside CDEL and RDEL. It says the move would put prevention spending on an “equal footing” with capital and day-to-day spending.

The amount of money departments currently spend on prevention work is opaque and identifying clear budgets for such work would enable the Treasury, parliament and the public to hold them to account for spending on prevention, the report says.

It adds that departments would, in turn, be able to hold the agencies and other bodies they oversee to account for funding provided to carry out preventive activity.

The creation of PDEL allocations could reset attitudes towards preventative spending work in departments and improve long-term decision-making, according to report authors Andrew O'Brien, Polly Curtis and Anita Charlesworth.

“Knowing that funding could be allocated specifically for prevention would encourage officials and agencies to develop programmes and activities on prevention as this could then be part of negotiations for future spending reviews,” they said.

“Separating out prevention expenditure means that budget holders are not put in the position of having to choose between helping people in need now, and preventing needs arriving in the future.

“Historically we know that acute pressures can lead to short-termism in decision making. Ring-fencing prevention budgets would improve long term decision-making and protect prevention budgets.”

The report acknowledges that creating the new PDEL spending category would lead to questions about what qualifies as preventative spending. It proposes that the Treasury sets up a working group to look at developing a definition of “preventative investment expenditure” and related accounting standards for the public sector.  

It says the group should include departments, the Office for National Statistics, the National Audit Office, public-sector accountancy body Cipfa and the What Works Centres, among others.

“Once the working group has made its report, the chancellor should create a Preventative Investment Unit within HM Treasury to apply the classification across departmental budgets and to commence use in budgets and spending reviews,” the report adds.

“Over time, individual departments could also create their own Preventative Investment Units so that they can monitor the onward transfer of resources to arms-length bodies, non-ministerial departments, local government and other agencies and ensure that allocations are being effectively spent.”

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