Improving Government planning and spending Contents

1Capacity and capability to ensure effective planning and spending

1.On the basis of a report by the Comptroller and Auditor General, we took evidence from the Cabinet Office and HM Treasury (the Treasury).1

2.The Treasury is the government’s economics and finance ministry, with overall responsibility for public spending. Since 2010, the Treasury has carried out a spending review every three to five years. A spending review sets the overall funding by reference to forecasts from the independent Office for Budget Responsibility (OBR), and adjusted for any subsequent policy decisions on taxes or borrowing. Within this overall spending envelope, the Treasury allocates funding to departments and usually agrees with each its spending limits for the next three to five years. The Treasury’s 20 spending teams, which make up around one fifth of the Treasury’s total workforce, advise Treasury ministers on decisions at spending reviews; review and approve submissions for new spending on projects and programmes; and monitor departments’ budgets and spending risks. Departments, led by accounting officers, plan and deliver their objectives and are accountable for their delegated budgets.2

3.The Cabinet Office monitors delivery of departments’ objectives and government policy priorities and oversees departmental business planning. Since 2015, each department has been required to prepare an annual internal business plan, known as a single departmental plan (SDP). An SDP sets out how departments plan to implement their objectives and government manifesto commitments, and deliver public services within the spending limits set by the Treasury.3

4.The Spending Review 2015 allocated £4 trillion of total public spending for the five years to 2020–21. The next Spending Review is expected in 2019.4

Skills, capability and informed decision making

5.We were interested in how the Cabinet Office and the Treasury ensure that they and the departments have the skillset to provide comprehensive advice that can inform both senior management and Ministers as to the right decisions. The Cabinet Office told us that it is building up the functional capability and experience in the civil service to give credible advice to Ministers, for example, on complex commercial arrangements, because the understanding of the complexities and factors that change projects has been lost. It acknowledged that the functional structure is not sufficiently developed and that it will take some time to build experience.5 The Treasury told us that they are focused on uniting the work of spending teams with various functions, such as finance, project management (through the Infrastructure and Projects Authority) and commercial. They highlighted that this represents a recent “sea-change” for the Government.6 Over-optimistic plans for delivery or savings are repeatedly followed by either failure to deliver, lower service quality, or a need for later last-minute and reactive funding injections.7 SDPs do not set out how departments are prioritising between the competing demands on their resources, or what has been stopped.8

6.We asked what training and guidance the Cabinet Office is giving to departments to help them improve SDPs. The Cabinet Office explained that it is using a maturity model, developed among government finance leaders, that sets out what is required for a departmental plan that is deliverable, financeable and resourced appropriately. The Cabinet Office told us that departments are currently self-assessing against the maturity model, and that it intends to use this to identify where it needs to build capability. The Cabinet Office said that hands-on professional training is happening through groups of planners and finance leaders to bring together required capability.9 There is still a lack of operational experience, particularly at more junior levels of the Treasury spending teams. Of finance and business planning staff in government departments that were surveyed by the National Audit Office, only 17% consider that their spending team in the Treasury has good operational experience.10 In terms of the age profile of its teams the Treasury acknowledged that it is a “young department” – meaning there are a large number of younger staff working there. To address gaps in experience the Treasury told us that it is recruiting more people from outside the Treasury and Whitehall.11 However, the Treasury does not have an overview of the skills and experience across its spending teams. In 2017–18, staff turnover (the rate at which employees leave an organisation and are replaced by new employees) in the Treasury was 21%.12 The Treasury acknowledged that more people leave for other Whitehall departments than join. It told us that it had improved staff retention by creating a new grade just below the senior civil service on the pay scale, to reward experience and specialist knowledge.13

7.Departments’ business planning has improved since 2016. SDPs are becoming integral to the way departments manage themselves, though there is room for further improvement.14 Of staff involved in business planning in government departments surveyed only 58% agreed that, in their experience, senior management used the unpublished single departmental plan for decision-making. It is also the case that not all plans reflect real prioritisation.15 The results of this are seen in poor forecasting and planning for the long term, as highlighted in our recent report on the Defence Equipment plan.16

Achieving long-term sustainability

8.The Treasury has controlled public spending effectively for many years. The Treasury told us that it is one of only five countries with advanced economies that produces fixed multi-year departmental budgets. It views multi-year budgets as a “massive strength to long-term planning for budgeting” as they give additional clarity: departments know what their budgets are for subsequent years and can therefore plan accordingly.17 Nevertheless, there are occasions when value for money is compromised by the needs of short-term spending control.18 We have repeatedly raised concerns that the system for funding and financially supporting the NHS focuses too much on short-term survival, and that cash injections paper over the cracks in finances rather than achieve lasting improvement.19 For example, the Department of Health & Social Care transferred funding for capital projects to fund the day-to-day activities of NHS bodies.20 For a number of departments the overriding objective in their business planning is to stay within the current year’s budget, having relied for several years on mid-year injections of funding from the Treasury.21 The Treasury recognised that there are “some short versus long-term issues on capital in the NHS, and maintenance” but told us that in every conversation with the Department of Health & Social Care and with the NHS it “is pushing to get the basics in place to deliver that kind of long-term planning.”22

9.Taking the example of mental health services for children and young people, government has set out its longer-term vision, but we pointed out that the government has not yet given these proposals any grounding by identifying what actions and budget it will need, what progress it has made so far, and what further work is required. This is an example where keeping to spending targets is leading to short-term decisions and preventing the creation of a model that will save money and provide better outcomes in the long run. The Treasury also acknowledged that in the NHS when the assumptions that underlay the original 2015 budgets had not come to pass, and where pursuing the budget would endanger value for money it had put more money in.23

10.The Treasury said it sets long-term budgets and was supporting departments to prioritise and plan more successfully.24 The government has agreed longer-term planning horizons with a number of departments. For example, the NHS will receive an average 3.4% a year real-terms increase in funding, equivalent to an additional £20.5 billion, over the next five years to support the 10-year plan, and the defence equipment programme has a 10-year budget and plan.25 The Treasury also told us it is doing longer-term thinking on infrastructure and capital spending. It established the National Infrastructure Commission, which in 2018 published its first national infrastructure assessment, including setting out a prioritised framework for long-term investment.26

11.We highlighted the risk of public bodies selling off assets for short-term gain without considering the longer-term impact, particular on public services. The Treasury explained it has a review of government departments’ balance sheet management underway which is intended to improve the return on assets and reduce the cost of liabilities.27 The Treasury told us that the Office for Budget Responsibility publishes its forecasts of the sustainability of the public finances up to 2060.28 In 2018, the Treasury updated the ‘Green Book’ guidance used to evaluate and appraise policy, project and programme proposals to include a broader consideration of costs and benefits, including the environmental impact of different options.29 It did, however, acknowledge that the Green Book’s application is not often entirely straightforward, so there is a need for the Treasury to build capability and skills, and help departments.30

12.Long-term planning is made more difficult by Government and Ministers rebadging schemes every few years, which makes it hard to see what is needed in the short and longer-term to address perennial problems, such as troubled families. This is a frustrating tendency and we wanted to know how it could be prevented. The Cabinet Office acknowledged this tendency and said “we have to work very hard to try to stop it.”31 The Treasury told us that for the Spending Review 2019, departments now have, in SDPs, a new way of thinking about priorities and organising resources, based on five, or ten, critical objectives.32 The Cabinet Office told us that SDPs are helpful for ensuring that business plans are adjusted in response to change, as it re-examines priorities annually33 The Treasury is working with the Cabinet Office on how to use SDPs to challenge bids and inform allocations at the next Spending Review.34

Working in silos

13.Often government objectives cut across more than one department and services are provided by multiple public bodies. The Treasury and the Cabinet Office have a responsibility to ensure coordination between all these players and, therefore, that spending delivers value.35 In 2016 the previous Committee recommended that the Treasury and the Cabinet Office work with departments on practical ways to improve joined-up planning across government and bring planning and delivery out of the confines of departmental boundaries.36 Yet government continues to be weak at planning and managing delivery when it cuts across public bodies.37 Of finance and business planning staff surveyed in departments, 31% disagreed that there were mechanisms in place to encourage joint working, knowledge and resource sharing with other departments.38

14.The Treasury acknowledged that government departments are ‘siloed’ and that it has to work hard to break through those silos.39 We asked whether the Treasury and the Cabinet Office were able to spot duplication of effort and had the authority to make departments work together. For example, at the last spending review in 2015 the Treasury received only two joint bids from departments.40 The Treasury said it encourages joint working through shared funding, targets and delivery but recognised there was more to do on each of these.41 It uses joint funding more and more, with the largest fund being the National Productivity Investment Fund, which has a £30 billion budget to allocate to infrastructure projects across departments. The Treasury agreed that joint targets can push departments to deliver within a set objective and it referenced the range of ways it had, including Cabinet-level implementation taskforces which bring together Ministers from across government to focus on cross-cutting issues such as increasing housing.42

15.We expressed our concern that when departments fail to coordinate this can increase costs and lead to cost shunting. The Treasury recognised this issue, and noted it had been identified in the review it had commissioned from Sir Michael Barber into public value. It explained that its costing projects look at cross-cutting issues and identify where costs fall in the system, and how one department can cause costs for another.43 It explained that it also wants to use SDPs to be clear about where this may happen, but the Cabinet Office noted that SDPs are not systematically shared across departments.44 The Local Government Association (LGA) has emphasised how local services are connected to the work of multiple departments. It stressed that Spending Review 2019 will be an important test of effective cross-government working.45 The Treasury told us that cross-cutting would be a key focus of the next spending review but it has not yet explained how it will encourage joint bids from departments.46

1 C&AG’s Report, Improving government’s planning and spending framework, Session 2017–19, HC 1679, 26 November 2018

2 C&AG’s Report, paras 2, 1.3–1.5, 3.4

3 C&AG’s Report, paras 2, 4

4 C&AG’s Report, para 1.6

5 Qq 102–103

6 Q 114

7 Q 35; C&AG’s Report, para 18, figure 19

8 C&AG’s Report, para 4.17

9 Qq 74–76

10 Q 113; C&AG’s Report, para 3.9, figure 21

11 Qq 113–115

12 C&AG’s Report, paras 3.9, 3.11

13 Q 116

14 C&AG’s Report, paras 2.5, 2.6, Figure 9

15 C&AG’s Report, Figure 8; para 2.14

16 Committee of Public Accounts, The Defence Equipment Plan 2018 to 2028, Seventy-Seventh Report of Session 2017–19, HC 1519, February 2019

17 Qq 19, 92; C&AG’s Report, para 24

18 Qq 20, 47; C&AG’s Report, para 25

19 Committee of Public Accounts, Sustainability and transformation in the NHS, Twenty-Ninth Report of Session 2017–2019, HC 793, March 2018; C&AG’s Report, para 21

20 C&AG’s Report, figure 6

21 C&AG’s Report, para 2.12

22 Q 47

23 Qq 20, 62; C&AG’s Report, figure 6

24 Q 20

25 Q 117; C&AG’s Report, para 1.19

26 Q 19; C&AG’s Report, para 1.18

27 Qq 109, 110; C&AG’s Report, para 1.16

28 Q 123; C&AG’s report, para 1.15

29 Qq 27–28; C&AG’s Report, para 4.6

30 Q 30

31 Q 36

32 Q 18

33 Q 85

34 C&AG’s Report, para 16

35 Q 44

36 Committee of Public Accounts, Managing government spending and performance, Twenty-Seventh Report of Session 2016–17, HC 710, November 2016

37 C&AG’s Report, para 4.8, Figure 24

38 Q 37; C&AG’s Report, Figure 25

39 Q 82

40 Q 42; Committee of Public Accounts, Managing government spending and performance, Twenty-Seventh Report of Session 2016–17, HC 710, November 2016

41 Q 83

42 Qq 42, 83

43 Q 45

44 Qq 45, 87–89

46 Q 44; C&AG’s Report, para 19

Published: 8 February 2019