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Using the Spending Review to break the cycle

Can government use the Spending Review to get out of the cycle of short-termism, over-optimism, and silo decision-making? Antonia Gracie, audit manager at the National Audit Office, reports.

For civil servants across Whitehall, amidst the intense work of Brexit preparation, there are other important preparations on the horizon. Those with responsibility for finance and planning are gearing up for a Spending Review that could be the most challenging of recent times. The chancellor has now announced that this will be a three-year Spending Review to be finalised alongside the Autumn Budget.

In 2016, we at the NAO reported that the last Spending Review was too short-term in its focus and did not incentivise departments to demonstrate how they would achieve value for money. We also said the Treasury’s approach, rooted in bilateral negotiation with individual departments, could not tackle difficult and entrenched cross-cutting issues. At the time, Single Departmental Plans, the government’s regime for professionalising Whitehall business planning and performance measurement, were in their infancy.

Last November we reported again, looking at progress on ‘Improving government’s planning and spending framework’. Our report drew on an opinion survey of finance and planning officials across Whitehall departments – we asked their views, ahead of the Spending Review, about the quality of financial and business planning, as well as the support and challenge they receive from Treasury spending teams.

A quote from one respondent is revealing: “Our department, and I suspect other departments too, is good at producing plans, but less adept at planning – particularly when it comes to making difficult choices about what things to do and how to do them.”

We did find improvements. The Treasury has begun to focus more on the longer term, for example providing guaranteed levels of funding to support 10-year planning in the NHS, and using the Whole of Government Accounts to strengthen its analysis of the government balance sheet. Within departments, our survey indicated that seven key elements of business planning capability have all improved since 2016 (though departments are still weak on understanding the relationship between inputs, outputs, and outcomes).

However, the dysfunctional behaviours that characterised past Spending Reviews are deeply entrenched: unwillingness to make politically difficult prioritisation decisions and match plans to actual, available resources; a focus on short-term spending control rather than longer term value for money; and failure to balance funding agreements with commitments on the level of performance. The risk is that departments and HM Treasury are complicit in agreeing over-optimistic plans that have no realistic chance of being delivered. Which leads, inevitably, to later cost cutting in ‘softer’ areas, which may be less high-profile, yet essential to people’s lives.

We concluded in November that an improved planning and spending framework may require different skills and a significant change in mindset both at the centre of government and in departments. If not, government will, in our view, continue to be trapped in a cycle of short-termism, over-optimism, and silo decision-making.

Spending reviews are sometimes seen as a ‘game’. If you want to change the way a game is played, then change the incentives for the players. In December, in front of the Public Accounts Committee, the Treasury and Cabinet Office described changes to try and do that. From 2019, permanent secretaries at the head of Whitehall departments will, for the first time, have to sign off on their business plans, formally stating that they are soundly-based and deliverable. These plans will provide the baseline for commitments made at the Spending Review, in which “joined-up thinking will be key.” The Treasury has said that this Spending Review will have “a renewed focus on the outcomes achieved for the money” and called for a change to “the culture, such that … departments will work together and with the Treasury to continuously improve … the value they deliver for taxpayers.”

For their part, officials in departments answering our survey said they would like to see change from the Treasury. They wanted open conversations about the Spending Review process; a focus on high-level strategic objectives, not micro details or policy initiatives; and the use of aligned performance measures that do not encourage ‘problem shifting’. Will this help break the cycle and make for a different kind of Spending Review? We shall see – the game is on.