Select Committee on Treasury Sixth Report

2  The evolution of the 2007 Spending Review

The new planning process

4. From the late 1960s until 1998, Government spending was subject to annual limits arising from an annual process, latterly known as the Public Expenditure Survey. In June 1998, the Government announced a new regime for planning and controlling public expenditure.[1] A new aggregate for spending plans was introduced, Total Managed Expenditure, with two components—Departmental Expenditure Limits and Annually Managed Expenditure. In relation to expenditure within Departmental Expenditure Limits, departments were to be set "firm and realistic multi-year limits", intended "to provide greater certainty and flexibility for long-term planning and management".[2] Other spending within Total Managed Expenditure, that could not reasonably be given firm multi-year limits—such as social security benefits, locally-financed expenditure and government debt interest payments—was to be known as Annually Managed Expenditure and to be subject to regular review outside the context of Spending Reviews.[3] In respect of Departmental Expenditure Limits, three year plans up to 2001-02 were set out in the 1998 Comprehensive Spending Review. Three year limits were subsequently reviewed and set in Spending Reviews in 2000, 2002 and 2004, under a system of a "three year planning cycle reviewed every two years".[4]

The decision to conduct the 2007 Comprehensive Spending Review

5. Had the pattern established since 1998 been continued, the next Spending Review following that in 2004 would have taken place in 2006. However, in July 2005, on the occasion of his first appearance before this Committee in the present Parliament, the Chancellor of the Exchequer, the Rt Hon Gordon Brown MP, announced that there would be a Comprehensive Spending Review in 2007 rather than a Spending Review in 2006. The 2007 Comprehensive Spending Review would establish expenditure totals within Departmental Expenditure Limits for 2008-09, 2009-10 and 2010-11; departmental allocations for 2007-08 would be held to the totals already announced as a result of the 2004 Spending Review.[5]

6. The characterisation of the 2007 review as "Comprehensive" harked back to the initial Spending Review of 1998. Like that Review, the process concluding in 2007 was intended to consider spending from a zero base.[6] The Government subsequently spelt out what this meant:

The aim of the zero-based reviews now underway is to renew each department's baseline expenditure to reflect changing priorities a decade on from the first CSR. Whereas past Spending Reviews have traditionally focused on allocating incremental increases in expenditure, the process of setting new long-term objectives in the CSR provides an important opportunity—with many past objectives achieved and supporting programmes and spending potentially available for reallocation—for a more fundamental review of the balance and pattern of expenditure within and across departments.[7]

The Government clarified its approach in a document focused on value for money issues published in July 2006 and in a further document designed to promote discussion on the long-term issues published in November 2006.[8]

The timing of the outcome of the Review

7. When we took evidence from the Chief Secretary to the Treasury in January 2007, the precise timing of the announcement of the final outcome of the Review remained unclear. He implied that it would not be later than October:

Clearly what is needed is for departments to have the details in good time for the start of the financial year 2008-09, and we will make sure this is done … It needs really to be done by October in order that departments have the details they need for putting in place their arrangements for the new financial year.[9]

However, he emphasised that July remained a possibility,[10] and subsequently stated that "we will set out in the summer what we think the appropriate level for health funding in the CSR years is going to be".[11]

8. In the 2007 Budget, the Chancellor of the Exchequer announced that the final public expenditure allocations arising from the Comprehensive Spending Review would be published in the "autumn".[12] Although Treasury officials declined to make a formal commitment to the specific month, they said that "in reality that will mean that we will have to do it by the end of October".[13]

9. In previous Parliaments, our predecessors have expressed concern about the inadequate notice for the date of Spending Review announcements. For example, notice of the 2004 Spending Review on Monday 12 July was not given until Tuesday 29 June.[14] The decision to announce the outcome of the 2007 Comprehensive Spending Review in the autumn—and almost certainly in October—offers potential benefits to the House of Commons. An announcement in mid-July is not conducive to timely and effective parliamentary scrutiny. However, the benefits of an autumn announcement will be reduced if inadequate notice is given of the date of the announcement. We recommend that a final date for the announcement of the outcome of the 2007 Comprehensive Spending Review be set and made public before the Summer Recess. We recommend that the outcome itself be announced when Parliament is sitting and not during a recess.

10. Similar considerations apply to any debate in the House of Commons on the outcome of the Review. Spending Reviews have generally been followed by debates in the House of Commons on public expenditure.[15] In 2004, the debate was held in the same week as the announcement of the outcome itself.[16] We recommend that the Government hold a debate in Government time in the House of Commons on the outcome of the Comprehensive Spending Review. We further recommend that such a debate be held at least one month after the announcement itself, to allow time for initial scrutiny by this Committee and others to inform the subsequent debate.

The early settlements

11. The process for the current Comprehensive Spending Review has differed significantly from that for previous Spending Reviews in the extent to which individual departmental settlements have preceded the final spending announcement. There are precedents for such early announcements: the health and personal social services settlements in the 2002 Spending Review were announced in the 2002 Budget;[17] similarly, the education settlement in the 2004 Spending Review was set out in the 2004 Budget.[18] However, the current Spending Review round has seen an unprecedented range of early settlements, with some announced well in advance. The Home Office, the Department for Work and Pensions, HM Revenue & Customs, HM Treasury and the Cabinet Office agreed their budgets up to 2010-11 in time for announcements in the 2006 Budget.[19] Further settlements for the Department for Constitutional Affairs, the Privy Council Office, National Savings & Investments, the Central Office of Information, the Food Standards Agency and the Government Actuary's Department were set out in the 2006 Pre-Budget Report.[20] The 2007 Budget saw further announcements relating to education spending, including spending limits for the Department for Education and Skills up to 2010-11, as well as early settlements for the Attorney General's Departments and the Office of Fair Trading.[21] Treasury officials told us in March 2007 that, taken together, the effect of the early settlements was to commit about 30% of total spending within Departmental Expenditure Limits.[22]

12. The Chief Secretary to the Treasury set out the rationale for the early settlements in evidence to us in January 2007, using the example of the Home Office:

The benefit for the Home Office of having that early settlement was a really quite unprecedented degree of certainty about the Department's future funding for, in that case, a whole five-year period. Of course, that is a very valuable degree of confidence and certainty, allowing a kind of long-term planning which ought to be much more common in public services than it has been in the past, but the old year-by-year budget setting made that impossible. We have moved with three-year budget settlements decisively in the right direction. In this case the Home Office had a five year period of certainty. If you have got that level of certainty about funding then of course there is more you can do in terms of reform … The Home Secretary is certain about the funding he has available throughout the CSR period.[23]

The Chief Secretary did not appear to rule out the possibility of further early settlements. Indeed, as we have already noted, he made a specific reference to a health settlement in the summer.[24] This might reflect the particular challenges associated with the health spending settlement, or it might reflect a working assumption in January that the final outcome would be announced in the summer.

13. We consider both the financial terms of the early settlements and the possible implications for spending settlements of machinery of government changes at a later stage in this Report.[25] We also comment later in this Report on the variations in the quality of information available about the early settlements at the time of their announcement.[26]

1   HM Treasury, Stability and investment for the long term: Economic and Fiscal Strategy Report 1998, Cm 3978, June 1998 Back

2   HM Treasury, Modern Public Services for Britain: Investing in Reform- Comprehensive Spending Review: New Public Spending Plans 1999-2002, July 1998, Cm 4011 (hereafter CSR 1998), Annex B, p 116 Back

3   Ibid, p 117 Back

4   Treasury Committee, Oral and Written evidence, Spending Review 2004, HC (2003-04) 906-i and ii, Ev 51 Back

5   HC Deb, 19 July 2005, cols 54-56WS; Treasury Committee, Oral and Written evidence, G8 and other international issues, HC (2005-06) 399-i, Q 1 Back

6   HC Deb, 19 July 2005, cols 54-56WS Back

7   HM Treasury, Releasing the resources to meet the challenges ahead: value for money in the 2007 Comprehensive Spending Review, July 2006, Cm 6889 (hereafter Releasing the resources), para 3.14, p 24 Back

8   HM Treasury, Long-term opportunities and challenges for the UK: analysis for the 2007 Comprehensive Spending Review, November 2006 (hereafter Long-term opportunities and challengesBack

9   Qq 9-10 Back

10   Q 13 Back

11   Q 55 Back

12   HC Deb, 21 March 2007, col 817 Back

13   Treasury Committee, Fifth Report of Session 2006-07, The 2007 Budget, HC 389-I and II, Qq 199-200 Back

14   Treasury Committee, Ninth Report of Session 1999-2000, Spending Review 2000, HC 485, para 5; Treasury Committee, Oral and Written evidence, Spending Review 2002, HC (2001-02) 1092-i and ii, Qq 38, 41-44; HC (2003-04) 906-i and ii, Q 171 Back

15   See, for example, HC Deb, 20 July 2000, cols 570-641 and HC Deb, 23 July 2002, cols 890-953. Back

16   HC Deb, 14 July 2004, cols 1452-1514. The statement had been made on 12 July 2004. Back

17   Budget 2002, paras 6.36-6.39, pp 119-122 Back

18   Budget 2004, para 6.46 and Table 6.1, p 145 Back

19   HC Deb, 22 March 2006, col 300; Budget 2006, Box 6.3, p 136 Back

20   Pre-Budget Report 2006, Box 6.3, p 143 Back

21   Budget 2007, Table 6.3 and para 6.25, pp 157, 147 Back

22   HC (2006-07) 389-II, Q 201 Back

23   Qq 89-90 Back

24   See paragraph 7. Back

25   See paragraphs 44-52. Back

26   See paragraph 105. Back

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