Spending Review 2013: taking on the union

6 March 2013

According to reports, the ‘national union of ministers’ is fighting further cuts in their areas ahead of the Spending Review. Is this just ‘fiscal nimbyism’, or is there more to it?

After a decade of steadily rising budgets, the 2010 Spending Review set out spending cuts on a scale greater than anything since demobilisation. Still relatively fresh in post, ministers were generally ready and willing to cut public spending dramatically in their departments as a contribution to cutting the deficit. Some went further, wanting to slim down a “wasteful and bureaucratic state that could get away with squandering taxpayers’ money”.

Yet, in the run up to the 2013 Spending Review, there appears to have been a spectacular reversal. Reports suggest a ‘national union of ministers’, including Theresa May, Philip Hammond, Eric Pickles and Vince Cable, has taken shape to resist further cuts in their departments. Philip Hammond has stated publically that he will resist further cuts to the defence budget and said there is now a “body of opinion within cabinet who believes that we have to look at the welfare budget again”.

This could be seen as nothing more than a reversion to the ‘normal’ state of affairs with ministers entering spending rounds keen to protect their areas. And, with Danny Alexander, Chief Secretary to the Treasury, quick to warn his colleagues against “fiscal nimbyism”, the Treasury has been quick to play its traditional role – taking on the union of ministers. It also has a powerful ally with the Prime Minister weighing in.

But such a change of heart from ministers who are usually thought of as fiscal hawks requires a deeper explanation.

In Transforming Whitehall we reported on the scale of the cuts and the transformational changes required in the Civil Service. The Departments for Communities and Local Government, for example, has cut 37% of staff; 33% of departmental expenditure; 74% of capital spend; and closed two-thirds of its arm’s-length bodies in two years. Senior officials from across the Civil Service told us that “there’s really nothing left to squeeze”.

Yet, as the Financial Times analysis sets out, simply rolling forward the numbers from the previous spending reductions to 2015/16 and beyond, while protecting the health, schools and international development budgets, would leave several departments facing large additional cuts. And, perversely, the departments which have cut furthest so far (like DCLG) are now being asked to cut even further in future. Ministers will have learnt that cutting hard means Treasury coming back for more.

This leaves ministers in an extremely difficult position: to look at increasingly radical options to make savings or to try and fight further cuts in their area and be accused of nimbyism.

With no return to growth on the cards any time soon, there is no avoiding tough decisions to close the deficit. However, if the ‘union of ministers’ is strong enough, it could be the unlikely source of pressure which begins to open up the traditional Treasury approach to spending rounds. We argued in our open letter on civil service reform that “identifying the most promising cross-departmental savings… will be required next time round to have any realistic chance of rising to the challenge”.

Herein lies the real battle: the biggest opportunities for further savings lie across departmental boundaries, not solely within welfare or any other single departmental budget. But accessing them will require Treasury to allow money and accountability to be attached to areas that multiple departments will contribute to and address the disincentives where costs and savings fall across departmental lines.

Senior officials in many departments across Whitehall are keen to collaborate ahead of the next round of savings. But that will also need the right incentives from ministers, showing that they are actively supporting each other to find savings for government overall, rather than passing the buck. That will be a true test of how strong the ‘union of ministers’ is, or whether this does boil down to fiscal nimbyism.

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Comments (2)

  1. Robert Irving on 6 March 2013 at 6:07 pm

    “With no return to growth on the cards any time soon, there is no avoiding tough decisions to close the deficit. ”
    The current set of policies have signally failed to make any impression on the deficit. Must the Institute for Government continue to parrot this Coalition line on economic policy or can it set out some ideas of its own?

  2. John on 8 April 2013 at 2:30 am

    For economics and finance to be relevant surely it must be able to provide an accurate account of the reason and reality in public service organisations. It must be able to understand how well each a3 delivers what public services are there to do. How well they achieve purpose. Finance must be connected to value delivered. This is different from a cost or budget-centred perspective. Cutting 30% off a budget does represent a saving in the budget, but it misses the point if in cutting the budget it forces costs into other parts of the system. This requires an understanding of value. It requires an understanding that costs are in flow and how well they deliver value and not units of expenditure. Unit costs can identify that it cost X or Y pounds (a3) to repair a dripping tap or fix a pothole, but is poorly placed to understand that it can take 10 x (a3) to fix the tap or 17 X (a3) to fix the curb. This binding of value to flow would uncover that much of the activity of public services has been driven by unit cost thinking which has driven costs higher and quality lower.

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