2 Informed decision making across
government
4. Commitments made by the Government,
such as to increase overseas
aid, maintain health spending and provide some form of protection
to other budgets (for example education) meant that its scope
to cut resource spending was limited. Departments accounting for
approximately 40% of resource spending, including local government
and the justice departments, therefore bore the brunt of spending
cuts.[5] There were also
other constraints which limited departments' flexibility when
it came to cutting public spending. The Treasury told us that
contractual rights of staff meant that their cost could not be
cut out overnight. The Treasury also explained that to reduce
wages the government would have to enact legislation and that
successive governments had been reluctant to do this.[6]
5. Over the spending review period resource spending
on programmes and administration is decreasing in real terms;
however, in cash terms there is a small increase from £333
billion in 2009-10 (the year before the Spending Review) to £346
billion in 2014-15. This is in contrast to capital investment
which was cut significantly in nominal terms—from £57
billion in 2009-10 to £41 billion in 2014-15. If these figures
are adjusted for inflation they show a cut in departmental capital
spending from £60 billion to just £38 billion—a
real terms cut of over a third.[7]
6. We asked the Treasury about the decision to
cut capital spending so significantly as it seemed to undermine
the Government's objectives of securing jobs and economic growth.
The Treasury explained that the decision to focus the biggest
cuts on capital spending was in part driven by existing spending
and political commitments. Decisions to defer or cancel new capital
projects were easier to implement than cutting current spending
which would often involve wage and benefit cuts. The Treasury
acknowledged that, with hindsight, it would not have cut capital
spending as significantly as it did and that the Chancellor's
more recent injection of £6.3 billion for infrastructure
represents a reversal of the some of the decisions taken during
the Spending Review.[8]
7. The Treasury told us that cuts to public spending
were difficult and could appear to be crude.[9]
We recognise the difficulties in the prioritisation process but
expect decisions to be made on a rational basis.[10]
We have previously identified many examples where short term cuts
have resulted in, often unanticipated, negative impacts over the
longer term. For example, the Ministry of Defence's decision to
delay projects, resulted in increased costs in the longer term;
the UK Border Agency's decision to reduce staff quickly, despite
progress on immigration case work being slower than expected,
resulted in the Agency having to rehire staff to process the backlog;
and cuts to spending on flood defences which may result in increased
costs from flood damage in the future.[11]
8. A limited planning horizon, such as those
for spending reviews, creates a risk that short-term priorities
take precedence and that these decisions may have perverse impacts
in the longer-term. The Treasury told us that the work of the
Office for Budgetary Responsibility in producing long-term projections
of fiscal sustainability and the introduction of the Whole of
Government Accounts were helping to address this issue. The Treasury
maintained that it was now better at considering the long-term
costs of policy options, such as capital investment, and that
a long-term view had informed pension reforms. However, it acknowledged
that more could be done to encourage governments to focus beyond
the current Parliament.[12]
9. The Treasury was proud of its innovative approach
to rank capital spending on the basis of their economic returns
and considered that it had resulted in a better allocation of
scarce capital resources. However, it acknowledged that this exercise
had only covered a small proportion of departments' spending (6%
of all DEL). There had also been weaknesses in the availability
and quality of the evidence used. Information on the value delivered
by resource spending had been weaker still. In many cases, departments
could not demonstrate what returns they were expecting or receiving
from spending, and officials could not present Ministers with
comparable information to enable them to compare options for spending,
or the implications of cuts.[13]
10. Departments also lacked the sorts of management
information vital to demonstrating what outcomes they expected
to achieve for each pound of proposed spending. For SR10, none
of the departments looked at by the National Audit Office initially
supplied cost effectiveness or unit cost information and the Treasury
admitted that compliance had been mixed. The Treasury did not
initially request information on the value of spending or the
impacts of cuts and subsequently found it difficult to gather
this important evidence quickly. The short timescales may have
hindered the collation of such information. However, information
which could aid improved understanding of value for money such
as data on unit costs, cost effectiveness and productivity is
not commonly part of the key management information used in departments;
and not routinely shared with the Treasury.[14]
11. The Treasury told us that, in some cases,
it suspected that departments deliberately withheld information
that may have proved inconvenient. It considered that in a number
of cases departments had been gaming the system as they were unwilling
to reveal that they had no evidence of any link between increased
spending resulting in improved outcomes. The Treasury believed
that in some spending areas, such as policing, skills and education,
increased spending had resulted in poorer outcomes. For example,
while teaching assistants were valued by teachers and parents
alike, the Treasury considered they had a negligible, if not negative,
impact on outcomes. The Treasury maintained that it was now doing
much more expert analytical work on public sector productivity,
for example, in health care, so that it would be better prepared
for the next spending review.[15]
12. There were also clear limits to the extent
of cross-government working for SR10. The budgetary system does
little to encourage or facilitate cross-government working. Engagement
between departments and the Treasury spending teams are typically
bilateral. While departments may be rewarded for good spending
control, for instance by being given more flexibility to carry
unspent money forward into the new financial year, they are not
similarly incentivised to work together. The Treasury agreed that
cross-government working on spending settlements was an area that
needed to improve and told us that the demanding timetable for
the Spending Review was one of the reasons that this had not happened
as much as it might have. In addition, some departments felt that
they could not work collaboratively unless given explicit permission.
The Head of the Civil Service told us that it was the intention
of civil service reforms to address cultural barriers to cross-government
working through open policy making, the expansion of shared services,
and recognition for staff that collaborate.[16]
13. The Treasury told us that the next spending
review would need to be held by December 2014 at the latest and
accepted that preparations should already be underway. The Treasury
wanted departments to act now to identify how they can work together,
but explained that uncertainty over the timing of the spending
review meant that departments were reluctant to do this. Cross
government working, like the use of management information, is
not currently routine: incentives are needed so that departments
feel empowered to identify opportunities outside of periodic spending
reviews.[17]
5 Q 13 Back
6
Q 1 Back
7
Q 1; HM Treasury, Public Expenditure Statistical Analyses 2012,
July 2012, Table 1.1 & 1.7 Back
8
Qq 1 - 7, 9, 13, 38 Back
9
Q 33 Back
10
Q34 Back
11
Qq 39 - 40; C&AG's Report, The UK Border Agency and Border
Force: Progress in cutting costs and improving performance,
HC 497 (2012-13), para 2.14 Back
12
Qq 11,15 Back
13
Qq 3, 4, 37, 39, 45, 52, 54; C&AG's Report paras 2.14 - 2.15,
2.19 - 2.20 Back
14
Qq 37, 39, 52 - 59; C&AG's Report paras 2.2 - 2.7, 2.28 Back
15
Qq 53 - 54 Back
16
Qq 20-24, 31- 32, 45 Back
17
Qq 20 - 21, 24, 25 - 28 Back
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