How to Run a Spending Review

Posted in: Business and the labour market, Economics, UK politics

Martin Wheatley is a Senior Fellow, Institute for Government. He has worked on public spending in the Treasury, and in other Civil Service and local government roles. He is a former Fulbright-Humphrey Fellow at the Humphrey Institute, University of Minnesota, Research Director, GovernUp, and Research Fellow, Smith Institute

Current comment is heavily dominated by a different UK government challenge next year, but 2019 will also see a spending review - one of the periodic Whitehall bunfights through which future public spending plans will be decided. Since 1998, generally every 2-3 years, governments have sorted out spending for up to five years ahead via spending reviews. The ancestry of the process though, goes back to at least the early 1960s.[1]

Financial planning for everything from animal health to new railway lines, across the whole of Whitehall and the whole UK, is a big technical challenge. It is also intensely political. A new report by the Institute for Government, the first output from its work programme on the Treasury, looks at the UK’s track record on spending management and makes suggestions for improvement for next year and beyond. Each spending review faces its own particular set of challenges. Next year’s decision-making will be complicated by the government’s fragile Parliamentary position, Brexit, and how far the government is able or willing to let the brakes off spending after nearly a decade of austerity.[2]

Our report finds that the UK approach has tended to work well in important respects, but also has significant shortcomings.

Government emerges from the political theatrics with a set of plans which add up. It is good, by international standards, at sticking to them. Following pivotal changes in politics, after 1997 and 2010, spending reviews have been broadly effective ways of orchestrating major shifts in the political strategy for public services.

However, the process is not as good as it might be in going beyond numbers which add up to ones which are the best feasible statement of planned spending.  Nor is it effective at translating high level strategy into a sound set of plans for public services and investment. The Treasury’s need to get the numbers to add up and reach a set of deals with departments opens the process to all sorts of risks: fingers-crossed assumptions about what can be delivered with given resources, cost-shunting, and accounting wheezes (like student finances). In the face of the Office for Budget Responsibility’s ever gloomier long term fiscal forecasts, the process pays next to no attention to the long term. One issue is that the Government “marks its own homework” – there is no independent assurance of the robustness of assumptions about whether spending aligns with intentions and commitments.

The Treasury is showing some renewed interest in driving value out of spending, following Sir Michael Barber’s 2017 report, but the approach he advocates still seems to be work in progress. Underlying our concerns about the process and its outcomes is a set of persistent concerns about the Treasury’s capability and culture: a reliance on capable, energetic, but inexperienced generalists, as opposed to those with strong finance or public service management experience. Public service leaders outside Whitehall are often particularly vehement in their perception that the Treasury neither explains nor listens.

Our suggestions for strengthening the process, next year, and beyond, are on five fronts:

  • a strategic framework for the review which is clear both about how tough the review is going to be financially (after the big commitment to the NHS made in June) and about what the Government’s intentions are for public services and investment after Brexit;
  • producing clear plans for performance and outcomes, as well as spending, the basis for which should be checked by the National Audit Office. We will be developing further thinking, beyond next year’s process, about independent testing and assurance of Whitehall’s numbers;
  • there are some big-picture challenges which the Treasury needs to address beyond individual programmes or departments: the spending consequences of Brexit, the future funding of local government, driving value for money out of public spending, and making sure financial risks are properly identified and managed;
  • clearer and more consistent documentation of plans for spending and performance, and what then actually happens. This should be the basis for a more informed debate with Parliament and the public;
  • reshaping the staffing of the spending side of the Treasury: further strengthening the input of finance professionals and those with front line public service experience.


[1] Described by former Permanent Secretary Lord Macpherson in a 2013 speech

[2] Our Performance Tracker publication sets out our analysis of the state of key public services. A new edition will be published in October 2018



Posted in: Business and the labour market, Economics, UK politics


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