The “end of austerity” – can we spend the money wisely?

26 June 2017

This is the final part of a three-part series on the “end of austerity”. The first noted the continuing difficulty of the public finances, making further reform essential. The second looked at what happened last time a government promised to boost public spending in a big way i.e. a “flash flood” of extra spending poorly used and borrowing far beyond expectations.

(Following, these, the Chancellor drew something of a line under talk of extra spending in his Mansion House speech. Last Wednesday he recognised that many voters are “weary after seven years of hard slog repairing the damage of the great recession”. Nevertheless he emphasised that higher taxes and higher borrowing are not sustainable ways to increase public spending, and so he would not change the Government’s fiscal targets. It was a markedly different tone to the words of Gavin Barwell immediately after the Election.)

This blog looks at whether government’s and the public sector’s attitude to public spending productivity has improved in the last 15 years such that another spending burst would be managed better this time.

A big part of this is the extent to which the heart of government, i.e. the Treasury, seeks to achieve value for money. Two powerful National Audit Office reports last year said that the UK Government still doesn’t have a system to do this.

The first report dealt with the last Spending Review in 2015. It found that, crucially, the Treasury doesn’t get departments to explain what they will achieve with their money:

“The spending review remains focused on finances. HM Treasury and Cabinet Office are working to improve the link between financial management and performance, but the pace of this has been slow. We (and the Committee of Public Accounts) have commented repeatedly on past failures to adequately link financial and performance information. Settlement letters do not set out detail on how departments will monitor performance, alongside the detail on how they will allocate funding to policy objectives.”

The same NAO report noted that the Treasury’s priority is to agree budget totals with individual departments. There will always be budget totals, but the bigger question is to improve outcomes for citizens, which inevitably need different public services to be taken together. At least in the last Spending Review, the Treasury was doing little of this.

A second report made similar criticisms of the new “single department plans”, which are supposed to explain how individual departments achieve their objectives against their budgets. The latest versions do not do that. (In retrospect the Coalition Government was mistaken in abolishing the Blair Government’s effort at doing this, “public service agreements”. Those documents had improved over a decade and could have improved further. By scrapping them, the Coalition set the clock back.)

These reports get to the heart of it. There is much more than can be said on how the public sector still doesn’t prioritise value for money, and Reform’s reports, in particular this recent example, have done just that. If the Treasury itself doesn’t ask the question during Spending Reviews, however, then it is hard to see why the public sector should do so. Given where we are, it would be extremely hard for any incoming Minister to identify the areas of spending that are worthy of extra investment.

This blog series suggests that the “end of austerity”, in the sense of a new flash flood of extra spending, should be avoided. The right way to respond to the 2017 Election is to understand that voters do want better public services within sustainable budgets. That means an understanding of value which goes beyond what the UK Government currently has, but which would be of inestimable value to UK citizens whether in economic good times or bad. Actually it would lead to an “end of austerity” because citizens could see how their taxes are improving their lives, giving them new hope. Philip Hammond has a job to do.

Andrew Haldenby, Director, Reform

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