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The day-to-day too often crowds out preparation for the longer term and the unexpected. There are isolated instances of systematic and imaginative analysis of trends, risks and possibilities around Whitehall. There are also some policies which represent genuine efforts to confront long-term challenges on a cross-government basis, such as the Better Care Fund, which aims to improve the integration of health and social care services for older and disabled people. Whitehall is developing useful tools. The National Risk Register assesses probabilities like natural disasters and terrorist attacks. Whole of Government Accounts provide deeper understanding of matters such as the £2,893 billion long-term liabilities of Government. However, there is no comprehensive understanding across Government as a whole of the future risks and challenges facing the UK.
The most surprising and urgent gap we found was in HM Treasury. We have not seen sufficient evidence that it has absorbed a key lesson of the 2007-08 financial crash: how best to prepare for another financial crisis as a consequence of the interconnectedness of financial uncertainty with wider risks and uncertainties. The Treasury acknowledged to us that the UK remains exposed to the risk of another adverse global economic event, such as the impact of a crisis in the Eurozone, and that this could be on the same scale as the 2007-08 financial crash. London is a financial centre of the world economy, whose major institutions remain vulnerable and exposed. We welcome that the Treasury does contingency planning, and the Bank of England's role and structures have been strengthened. Yet financial and economic risks are not included in the Government's National Risk Register, so the Government does not consider these systemic risks alongside other, non-financial risks, such as pandemic flu and antimicrobial resistance, and different responsibilities and functions are divided between the Bank of England, Financial Conduct Authority and the Treasury. Market-wide exercises have been conducted to test resilience, but not on a comprehensive basis to address the risk of systemic financial collapse triggered by an unexpected event.
We recommend that the Treasury should undertake planning for a range of crisis scenarios, based on a broad range of forecasts, data sources and assumptions, and which may be triggered by non-financial as well as financial events. It should conduct desk-top exercises ("war games") involving the Bank of England and the Financial Conduct Authority to test institutional responses and systemic resilience. This should inform a wider programme of cross-government exercises to test policy resilience (financial, economic, political and strategic).
We recommend the Cabinet Office include systemic financial and economic risks in its National Risk Register; and ensure that lessons learned from this are synthesised into policy making and spending decisions. This is not just to ensure financial and systemic resilience. The Treasury lays claim to responsibility for economic growth. It accepts that "slow productivity growth" raises "massive issues" for the future, but does not yet seem to appreciate the role of Government in promoting new technology and innovation across the public sector and in the private sector, such as in reducing CO2 emissions in transport, or leading the revolution in electrical energy storage. The Government must set out how it will exploit all the available knowledge to counter this risk of "secular stagnation" in the economy by seeking out and exploiting opportunities to promote growth through innovation.
We welcome the establishment of the Cabinet Office's horizon scanning programme team, but this five-person team is too small to gather, let alone synthesise, all the relevant understanding generated around Government. The Canadian equivalent, Policy Horizons Canada, has some 25 staff and draws on a large number of outside experts. The Government thus cannot identify, assess and synthesise this information and so advise ministers on how to address gaps or duplication in policy and plans made by government departments, or to resolve conflicts and generate a comprehensive view of the key policy risks and challenges. The failure to act quickly on the developing Ebola epidemic in West Africa is an example, costing thousands of lives and billions in aid. This failure was by no means unique to the UK but we found that the Chief Medical Officer and the Joint Intelligence Committee combined their understanding too late for timely action.
Horizon scanning and financial planning are disjointed. There is growing awareness of the need for coordination between horizon scanning and risk assessment, but not of the need for coordination between horizon scanning and public investment decisions. The capacity is needed to generate and implement cross-government financial plans, as opposed to merely collating departmental actions and calling them a plan. The new Chief Executive of the Civil Service points out that "normally, in the headquarters of a company", his role and the Treasury's responsibility for setting spending limits across government would be "in one headquarters". Some, like the new think tank GovernUp, recommend major structural reform, and the creation of a new Office of Budget and Management, to be set up in the Cabinet Office. There is a clear requirement for new capacity to inform spending reviews and decisions about financial priorities. It must be capable of formulating and overseeing the implementation of cross-government financial plans. We recommend that the Government sets out how leadership of this work will be shared by the Chief Executive of the Civil Service and the Treasury, so that their work is integrated. It should be presented in the form of advice to Cabinet, its committees, and individual Ministers to inform decisions about spending, investment and policy.
Early in the next Parliament, the Government needs to set out how it will improve the machinery of government and better educate civil servants at all levels to think about systemic risk, risk management, uncertainty and future challenges. We recommend that senior civil servants' career development includes a period with the Cabinet Office's horizon scanning programme team, in order to understand its role, and long-term thinking, fresh ideas and challenge. This would provide the unit with much needed extra capacity. The capacity to analyse, assess and plan for the future should be used better to underpin far-reaching decisions on systemic issues such as infrastructure, technology, financial regulation, defence and security. This is vital not just to build resilience to unforeseen adverse events but also to increase the UK's capability to exploit opportunities and innovation, which is necessary to remain competitive and viable. Parliament should follow-up and scrutinise progress on the quality and impact of this Whitehall capacity.
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