Changing the culture of public spending

The spending review could be an opportunity to reform how we deliver public service as well as setting budgets

This autumn’s spending review is likely to be one of the most important political events in this parliament. The Government faces the challenge of delivering a further £30 billion of cuts to public spending on top of savings already delivered in the last parliament.

As well as setting out spending plans, the spending review is an opportunity to set the direction of travel for public services over the next few years.  The Prime Minister has promised that the Government will deliver ‘the good life’ and make sure that public services work for ‘one nation’, so this means continuing to deliver high quality provision whilst funding is reduced.

At an event hosted by the think tank Reform this week, a number of leading figures set out their ideas on how the Government should approach the spending review and square the circle of saving money whilst delivering the Government’s promises of meeting the public’s demand for services.

Sir Gus O’Donnell, who has played a significant role in a number of previous spending reviews as a Treasury Civil Servant and as the Cabinet Secretary between 2005 and 2011, set out his suggested ten point plan that the Government should follow to deliver an effective review:

  1. Spending review periods should be linked with five year parliamentary terms, rather than three, or in some cases one year.
  2. Fiscal rules need to be clear. The various ‘golden rules’ over recent years have been broken because economists find it difficult to tell what is sustainable spending. There needs to be clear rules which are stuck to.
  3. Negotiations between the Treasury and individual departments need to be less adversarial and focused on delivering improved outcomes rather than inputs.
  4. The spending review process needs to consider the behavioural science. The Treasury operates under the fallacy that the public will always make rational economic decisions. This isn’t the reality.
  5. Capital investments need to consider a cost benefit analysis which considers wellbeing rather than simply economics.
  6. Simplify rules governing the provision of public services so they make sense to users.
  7. Deliver joined up health and social care. Whilst this has been talked about a lot it, hasn’t yet being delivered.
  8. Climate change needs to be a priority and as well as ensuring that all the externalities of fossil fuel use is accounted for in tax, more investment is needed in Research & Development and this needs to be focused on storage and transmission technology.
  9. There needs to be a review of tax expenditure. For example, the number of tax exemptions, including zero VAT ratings and tax breaks such as ISAs.
  10. Pre-scrutinise all spending programmes. O’Donnell encouraged Meg Hiller, the new Chairman of the Public Accounts Committee, to have more of a focus on scrutinising spending programmes before they go wrong.

The other two speakers, Labour’s Steve Reed MP and Bernard Jenkin MP, the Conservative Chairman of the Public Administration and Constitutional Affairs Committee, agreed with some aspects of the ten points.

Bernard Jenkin joked that given the clarity of O’Donnell’s plan, it would be great to see what he could achieve if he had an important job in Whitehall for a few years. He explained that the point of his dig at the former Head of the Civil Service was that what might be logical in theory clashes with the reality both of the Civil Service system and politics. Issues like VAT exemptions of food, or the provision of NHS care free at the point of use might not make economic sense, but they are part of a social settlement that politicians who rely on the support of voters need to respect.

In agreeing with the view that spending decisions need to focus more on outcomes rather than inputs, Jenkin called for a culture change in Whitehall which focused on more co-operative relationships. He argued that the Cabinet Office needs to play a bigger role in delivering better cross-government working and deliver reform consistent with the woking of the Civil Service.

Steve Reed said that the missing element was the importance of devolution. The focus of delivering public service reform needs to be done through the wishes of the users. Reform needs to be done with users not to them. He argued that Labour needs to accept the importance of the Government’s devolution agenda, but argue that devolution needs to mean devolution to people rather than political structures at the local level which can be as distant from users as central government.

It remains to be seen if any of these ideas are taken up by the Treasury as they develop the spending review. The early days of a single party Government does provide an opportunity to shape public service reform by the way that  Government make decisions at the centre. There are significant opportunities for better cross-departmental working and a focus on the outputs from government departments rather than how much they have to spend.