04 September 2019

With Brexit leaving plans for a serious three-year spending review in tatters, Martin Wheatley is encouraged to see the Treasury still showing some focus on how best to spend public money.

When the IfG predicted that the next spending review would take place in ‘challenging’ circumstances, we could scarcely have imagined what would follow.

Brexit, and the speed with which decisions have been taken, means the review mostly covers spending in 2020/21 only, while there has not been much time to address how much and how well money is spent. Against that background, the Treasury – which has genuinely been aiming for a stronger process – deserves some credit for maintaining aspects of its reform programme.

There is no current strategy for public finances but there is some prioritisation of spending

In his statement to MPs, Sajid Javid declared that “we can now afford to turn the page on austerity”. The 4.1% real terms increase in spending he has announced for 2020/21 is affordable, according to the Office for Budget Responsibility’s spring forecast, but the Institute for Fiscal Studies has pointed out “making major spending decisions without the latest economic and fiscal forecasts is a risky move.” If the chancellor ends up presenting a post-election Budget, the OBR’s new forecasts may force him to come clean about abandoning the Conservatives’ totemic commitment to lower borrowing and decide whether to put up taxes or start to cut spending again.

The extra cash has been strongly focused on what Javid calls “the people’s priorities” – health, education and crime, as well as Brexit. Other areas, like business and housing, have only got a flat real-terms settlement. There is, therefore, positive evidence of deciding, and sticking to, priorities.

There are signs that the Treasury is thinking seriously about where best to spend money

In our analysis published ahead of the statement, we were concerned that the government’s choices might be driven by politics rather than where money is most needed. The chancellor has been most generous to the obviously popular NHS, schools and the police, but he has also put additional money into areas like prisons and social care which, on the basis of the evidence, are struggling. However, the extra cash is for one year only and continues the government’s practice of staving off crises through one-year cash injections rather than providing longer-term stability.

The spending round document also restates the Treasury’s commitment to paying attention to the results of spending, and sets out some examples of how the extra spending on health, education and police will be linked to measures of what it achieves – though the specifics have yet to be nailed down in further discussions with departments.

However, the NHS and schools aside, public services have only been set budgets for 2020/21. Being unable to plan over a longer horizon will make it more difficult to make best use of the available money.

The spending round fails to focus on big cross-government challenges

It is little surprise that the only big cross-government challenge that the spending round has anything serious to say about is Brexit, with an announcement of £2 billion of extra spending in 2020/21. 

Sajid Javid has provided a real terms increase in local government spending to address the extreme pressure on social care and other services, but big questions about the role of local government and how it should be funded – which we previously warned was an urgent challenge for government – have been put off for another day.

There is a £200m fund “to pilot innovative approaches to cross-public sector working.” It is important that this doesn’t just become a slush fund for headline-grabbing announcements, and that its results – and what can be learned from them – are properly evaluated.

The government is not being open and honest about what it is spending

A government for whom the spending round is a prequel to an election manifesto was always likely to stick to spin, smoke and mirrors instead of putting forward a consistently clear set of plans for spending and performance.

The spending round document follows the tried and tested formula of giving total numbers for each department only, rather than setting out how it is allocated to programmes within them – it is a highly selective commentary which draws attention to the good news. Yet again, external observers have not been helped by the government’s failure to publish its figures in Excel. If the OBR can do it, then why not the Treasury?

The 2020 spending review: getting down to proper business

The 2020 spending review is more shrouded in even more uncertainty. We don’t know what will have happened to Brexit or the economy – or whether the chancellor and prime minister will still be in post.

Taking place in the first year of a new government, it will be a real opportunity to set out the government's priorities and determine where money should be spent. Or it could default to the usual set of bilateral haggles and end up with no sense of strategy, money in the wrong places and no focus on how to squeeze value out of spending. It would be bad for the government politically, and bad for the country, if that were allowed to happen – however challenging the circumstances in which the next spending review is put together.