Follow us
Publications Commentary Research People Events News Resources and Videos About IFS
Home Publications Making popular spending decisions in a rush raises risk of costly errors

Making popular spending decisions in a rush raises risk of costly errors

Newspaper article

The rest of the country may be getting a little worked up about the prorogation of parliament, but it’s another breach with precedent that is worrying me, getting only one week’s notice of the date of the spending review. It will happen on Wednesday, a date announced only last week.

Ministers and civil servants across government found out about it at the same time as the rest of us. The process for getting agreements on spending allocations is generally long, resource-intensive and painful.

It’s long been known that spending settlements were to be agreed sometime this autumn so much of the process will already have happened. Each department will have prepared a case for more money backed by a mountain of evidence. Departmental cases will have been scrutinised and challenged by Treasury spending teams, generally not much more than a dozen strong but with responsibility for understanding and challenging multibillion-pound budgets.

The Treasury’s powerful general expenditure policy team will make sure all the numbers add up: whatever the strength of individual bids, the total has to be controlled. They will work with ministers, advisers and colleagues to ensure that they understand the trade-offs that will have to be made.

Treasury ministers should then take this mountain of painstaking work, negotiate with cabinet colleagues, and come to a conclusion about where to spend the available money. They should combine political judgments with the evidence on need and value for money. Out of this great Whitehall sausage machine will spew decisions which affect the quality and availability of all our public services. Whether new Treasury and spending ministers can really have got to grips with all of this in the past six weeks remains to be seen.

During the past decade this process has been spectacularly successful in one sense. It has controlled public spending which today is no higher than it was in 2010. If that doesn’t sound like much of an achievement remember that, first, nothing remotely like that has ever been achieved before, including during the 1980s, the heyday of Thatcherism. Second, public spending has fallen from 45 per cent of national income in 2010 to 38 per cent today. Third, this overall stability has been achieved while substantially increasing spending on health, implying big cuts in many other areas.

No doubt this week’s spending review will also be successful in that sense. Assuming that we have the same government in a year’s time (a slightly wild assumption I appreciate) spending will likely come in close to target.

In another sense, though, recent spending reviews have not been successful at all. They have failed to spot crises until it was too late. They have managed the quantity of public spending but not always its quality or impact.

In the overall scheme of things, the nearly 30 per cent cut to the Ministry of Justice budget has saved little. The negative consequences for the effectiveness of the courts service and the conditions in our prisons have been dramatic. Warning signs were not acted on in time.

The case for cutting local government funding in 2010 was probably strong. More than one local authority chief executive told me that back then they had been “pi**ing money against the wall”. Nearly ten years on and things look very different. Crises in social care and other local services suggest that the Treasury was not aware in time of the consequences of their decisions as the squeeze went on and on.

One danger is that this week’s announcement will repeat and multiply similar mistakes. The hurried and overtly political nature of the decisions is likely to exacerbate those risks. We know that schools will get a substantial boost to their funding. And it’s good to see that further education will also benefit this time around, having been dreadfully neglected by successive governments. Police and, once again, health will also be prioritised. Fair enough.

However, if you had to rank those areas of spending most affected by cuts, or where the strongest evidence for more spending exists, or where risks were greatest, you’d probably come up with different priorities. You’d probably place the justice system ahead of the police and social care ahead of health. Local government funding would be close to the top of the list. It is to be hoped that Sajid Javid will follow the example he has set with further education funding and bear the needs of these, less high profile, public services in mind as he comes to his final decisions.

A second danger is an old one, but one which may, for obvious reasons, have been forgotten in recent years. That’s the danger of trying to spend too much too quickly. It happened in the early 2000s when spending in general, and health spending in particular, was rising fast. Costs increased and money was wasted as the supply of cash rose more quickly than the capacity sensibly to manage it. It would be daft, for example, to try to increase the number of police by 20,000, at a cost of about £1 billion, in a year. Big immediate increases in funding may draw more plaudits but they put value for taxpayer money at risk. The opposition should bear this danger in mind as they plan much more substantial spending increases.

Finally, a third danger. We have had one long boom and one long bust in public spending in the past two decades. This has been costly and disruptive. If the economy suffers as a result of a no-deal Brexit, spending taps opened today may have to be closed again in a couple of years if the deficit and debt once again spiral out of control. A wise chancellor would exercise some caution right now.

Paul Johnson is director of the Institute for Fiscal Studies. Follow him on @PJTheEconomist

This article was first published in The Times and is reproduced here with permission.