27 November 2018

The National Audit Office says the planning of government spending risks being “trapped in a cycle of short-termism”. Martin Wheatley says next year’s Spending Review must bring this to an end.

In a week of media focus on the Prime Minister’s Brexit deal, a report by the National Audit Office (NAO) on ‘Improving government’s planning and spending framework’ isn’t getting a lot of coverage. But at some point, we will emerge from the Brexit tunnel and the public services challenges facing the country will need to be addressed. If the 2019 Spending Review does not confront them, these challenges will become yet more intractable.

The NAO report looks at departmental planning and the role of spending teams, arguing for important changes in the way spending reviews are done. It calls for: placing more emphasis on value for money; focusing on realising the benefits of major projects; planning and managing performance across departmental boundaries; and ensuring departmental plans are credible.

We agree. Our report argues that next year’s Spending Review needs to focus on performance, not just allocating money to be spent. Sensible financial planning looks at what the money does, not just how much it is; it is performance and impact which matter for citizens. There is too much optimism about what can realistically be achieved with the money available (we show how this played out in the Ministry of Justice and HM Revenue and Customs). The Treasury needs to do more to scrutinise whether the benefits planned from investment have been achieved.  

Planning for financial risk needs to be at the heart of the spending review process

The Treasury has, rightly, been paying more attention to identifying and planning for financial risk, but this needs to be built into the heart of the spending review process. Like the NAO, we argue that the process should try to solve problems that extend across departmental boundaries, including the consequences of Brexit for spending and public services, and the financing of local government.

We agree that departmental plans are not reliable. There is a tendency towards optimism bias and too much shifting of costs across departmental boundaries. Accounting devices are used to conceal long-term costs. Yet, we say, if they achieve any gains at all, they are likely to be transitory. Our Performance Tracker (produced in partnership with CIPFA) shows how public services have too much been muddling through, with emergency cash.

The NAO acknowledges, as do we, that the Treasury recognises the force of much of this analysis and has begun to strengthen its approach. The Budget Red Book, for example, says the Spending Review “will aim to ensure that policy issues are considered across departmental boundaries, and that performance and outcomes achieved for the money invested in public services are tracked systematically.” It would be a significant step forward if the Treasury really shifts the design of the process and the focus of its spending officials in this way.

The NAO’s survey of departmental spending officials suggests, very encouragingly, that they want the Spending Review to have a clear strategic focus, for spending and performance discussions to be aligned, and for the centre of government to make sure there is a consistent view about performance across government.

The unanswered question at this stage is how exactly what appear to be good intentions will be put into practice, especially in an exceptionally challenging political context. For us, the very extent of that challenge is a reason to embrace change, not put it off.

The NAO’s report is a very well-evidenced and balanced analysis of what is currently working well and less well. It offers sensible and practical proposals. It is vital for the future of public services and investment, and trust in government, that it is heeded.

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