The approach taken in recent spending reviews is not up to the job of achieving Labour's missions, warns a new Institute for Government report
The report, How to run the next multi-year spending review, shows how the existing process fails to align government spending with strategic priorities and long-term value for money.
The report - which looks at spending reviews dating back to 1997 - says the process has been undermined by the variability in its frequency and timing, the poor use of evidence to guide decisions, and a failure to reflect government priorities in Whitehall department budgets - for example with the inadequately defined ‘levelling up' aim going into the 2020 and 2021 spending reviews.
To give the government a better chance of delivering its missions and tackling the complex challenges it has inherited, the report recommends that Rachel Reeves reset its approach to spending reviews and introduce more effective ways of managing public spending.
The IfG welcomes Reeves' plan to establish a regular cycle of spending reviews, and set out the process in the Charter for Budget Responsibility. This new IfG report calls on the chancellor to go further, running a more in-depth spending review that sets cross-departmental spending plans for each government mission, as well as each department.
The report's recommendations to improve the spending review process also include:
- Defining the government's missions - and other priorities - in a ‘Priorities for Government' framework, to guide decision making in the spending review and enable the prioritisation of spending.
- Providing spending settlements beyond five years for large infrastructure projects and public sector capital programmes.
- Broadening the scope of review to include tax expenditures and demand-led spending (AME), including welfare.
- Tasking an independent body to scrutinise multi-year spending baselines and plans, to help overcome perennial problems of ‘business-case gaming' and unrealistic spending plans.
- Incorporating a set of ‘Dutch-style' interdepartmental reviews of thematic policy areas, including the government's missions, into the spending review to review the evidence for policies being funded and improve the strategic alignment of spending, as well as to maintain control of totals.
- Instructing mission boards and other interministerial groups to develop joint strategies and spending plans to help overcome Whitehall's natural tendency towards siloed working.
- Using spending plans as the bedrock of a cross-cutting strategy for each mission and an overarching performance framework for government to help delivery and improve accountability after the spending review.
Olly Bartrum, Senior Economist and report author said:
“Past spending reviews have been effective at helping the government meet short-term fiscal targets but not at aligning spending with priorities or delivering improvements in long term public service productivity. The transition to a new government provides an opportunity to reset how the process works.”