This report is about how the Treasury can be an effective 21st-century finance ministry. There are serious pressures on tax revenues and public spending that constrain what government can spend in total. Yet both the current government and Labour want to improve the impact of public services and investment, both on the government and on society.
The Treasury will not be able to manage this tension just by setting budgets for departments: it will need to apply itself, consistently and seriously, to how money can be spent to achieve as much impact as possible, at least cost.
The problem of performance management, and the Treasury’s role in it
We looked at how planning in central government, overseen by the Treasury, currently affects how public services and investment perform practically. There is much cause for concern: spending and accountability are often not adequately lined up; information is not used properly to inform decisions; the government does too little to understand or plan the impact of spending on metro or county areas; spending is planned wastefully; and the government does not explain its intentions clearly. The Treasury’s current ways of working contribute strongly to these problems.
A long endeavour
Important lessons can be drawn from the experience of successive governments over the last 40 years. These include the benefit of strong political leadership, the need for a central role for the Treasury, effective prioritisation, and to make use of small units at the centre of government. Political leadership is especially important, as is the need for the Treasury to be bought in to play a central role. Above all, accountability for achieving results needs to be clear, and the right incentives must be put in place. The approach needs to adapt and develop over time, but should avoid complete reinvention.
The government’s current approach
The government’s two main current tools for planning spending are single departmental plans (SDPs), which have been published annually since 2016, and the Treasury’s public value framework (PVF), published in final form in spring 2019.
SDPs are currently a long way from achieving their intentions of “bringing together inputs, outputs and outcomes” and encouraging stronger prioritisation. They have improved departmental planning to some extent, but they fall a long way short of what is needed, both in concept and execution. The system is not bringing about clear prioritisation for government as a whole or in departments. Departments see SDPs as being run by the Cabinet Office and as detached from their financial planning conversations with the Treasury.
And by refusing to publish plans in full, the government prevents outsiders – including MPs – from properly judging how well departments are planning and achieving results.
There is much good content in the PVF, but it, too, has limitations. It will be difficult to apply it to social policy challenges where cause and effect are unclear, and it needs to draw more on the insight of leaders of public services outside central government. It does not sufficiently recognise the potential for digital technology to produce a fundamental change in the way government produces results, over and above just making current concepts more efficient.
Most importantly, the framework has not been properly tested in a full spending review process. It needs to show it can be an effective counter to the Johnson government’s apparent tendency to see big injections of cash into popular public services as the answer.
A new approach
The Treasury needs to be much more determined, even radical, in three ways.
First, a strongly enhanced spending review process. It would be based on an agreed set of priorities for the whole of government, and address intended performance with the same thoroughness as spending, with much stronger use of data and evidence. The Treasury would be strongly and directly in the driving seat for this process.
Second, the Treasury cannot manage everything directly itself, but nor can it just assume departments will do the right thing. It must set and enforce clearer standards for departmental performance and internal accountability, ensuring they have the leadership and staff data they need to achieve them.
Last, but not least, external transparency and accountability must be strengthened. The Treasury should publish more information on spending and planned performance, and make sure it is accessible to the public or non-experts – including MPs. For its part, Parliament needs to recognise its responsibility, and strengthen its approach to scrutiny. The Treasury should see this as something to be welcomed.