25 October 2018

Philip Hammond must use the Budget to set out a radically different way of running the next Spending Review. Otherwise it will unravel painfully, argues Martin Wheatley.

Budgets are about big government priorities: the economy and tax. But this Budget is particularly important in that it must set the scene for next year’s Spending Review.

Our recent report sets out what often happens. Spending reviews end up as a collection of deals made between departments and the Treasury, rather than indicative of a government-wide strategy. They use short-term fixes, optimistic assumptions and accounting wheezes to get a set of numbers that add up on a spreadsheet. The consequences of a bad spending review are borne out in the IfG and CIPFA's Performance Tracker, which shows several public services in crisis, receiving emergency cash top-ups to plaster over the cracks.

And all the signs are, unfortunately, that Brexit and its associated political challenges will mean more of the same in the next Spending Review.

But there could be a better way.

Our report has some ideas for what the Chancellor must do to improve the next Spending Review. This needs to start with setting a clear direction in the Budget:

  1. The Chancellor must spell out a short set of specific government priorities for public services and investment that go beyond programmes and into outcomes. When the Prime Minister said that the Spending Review would “set out our approach for the future”, the Budget needs to show exactly what matters.
  2. The Chancellor must set out how the next Spending Review will be based on what the money buys – in terms of performance and value – as well as how much money goes in. With the (relatively) easy efficiencies already having been made over the last eight years, the review must look for radical new thinking on how services are organised and delivered. For example, could more local control over public spending reduce waste?
  3. The Budget will lay out the process for the next Spending Review. It must show the Treasury using expertise from outside the civil service. It can find it among the top-level leaders who sit on departments’ boards as non-executives, experts and experienced operational leaders. Their insight and challenge can be harnessed through temporary hires into the Treasury and expert groups, to challenge received Whitehall wisdom.

When the Chancellor sits down on Monday, we will be looking for signs that he understands how the Spending Review must change. Otherwise, the Government may get the numbers to add up but its plans will soon fall apart. Daily headlines may switch between council bankruptcies, police station closures, bed-blocking and prisons burning down. But it will be basically the same story: no strategy, emergency funding, and a constant sense of a government in crisis.

The Chancellor only has one option really: to improve the Spending Review. And to start with the Budget.

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