SPENDING REVIEWS: what are they good for?

By Colin Talbot

What is a “Spending Review”? Simply it is a statement, by HM Government, of what it intends to spend over the next (usually) 3 years. And what it will spend it on.

Sounds deceptively simple? “Deceptive” is the operative word, because it turns out to be anything but simple or straightforward.

THINGS CAN ONLY GET BETTER?

In 1997 New Labour, led by Tony Blair and Gordon Brown, swept to power.

One of their key promises before the election was that they would stick to the spending plans set out by Tory Chancellor Ken Clarke for their first couple of years in office.

This was controversial because Clarke’s Budget in November 1996 set out plans cut public spending for three years ahead. Clarke did this – he later admitted – so he could justify promises of tax cuts in the upcoming election. He has also said he didn’t expect Labour to stick to his forward plans, and wouldn’t have done so himself if the Tories had won.

Labour did stick to his plans for spending up to, and including, 1998-99. But they announced a “Comprehensive Spending Review” that would be published in 1998 and take effect for 1999-2000 until 2001-2002 (3 years). Which they duly did.

Labour went on to publish three 3-year “Spending Reviews” (SR) in 2000, 2002, and 2004. And then another “Comprehensive” SR in 2007.

They did not publish another SR in 2010 when it was due and were replaced by the Coalition Government. Who, much to the surprise of many, decided to continue with the SR innovation.

THREE YEAR PLANS?

Back in 1961 Plowden Report on ‘Control of Public Expenditure’ had recommended that Budgets include a 5-year forward look at probable spending in certain areas.

In a witty and prophetic dissection of the Report, Bill McKenzie, a politics professor at Glasgow, paraphrased this at the time as “let us at least have a general [idea] … for expenditure over five years, the first year clear, the four later years shading off into impenetrable fog. This will make us all feel better about it.”

By Ken Clarke’s 1996 Budget 5 years had reduced to 3, but the “shading off into impenetrable fog” remained. No-one really took the forecasts for future years in Budgets seriously and no-one ever kept to them. Except Gordon Brown.

Labour’s new SRs were meant to be different. They really were supposed to be Three Year Plans in which departmental spending was fixed solidly. There was some flexibility to bring forward, or push back, ‘end year’ spending but over the 3 years they were supposed to stick to their spending totals over the 3 years.

The only major exception was ‘annually managed expenditure’ on ‘transfers – benefits, pensions, etc – that could not be planned or controlled in the same way.

PLAN MEETS REALITY?

As John Lennon famously said “Life is what happens while you are busy making other plans.” (Although he apparently didn’t invent the saying).

The eagle-eyed amongst you will have already spotted something odd. New Labour was promising fixed 3-year plans, but the gap between the first four SRs was only 2 years: 1998; 2000; 2002; 2004.

The official line on this oddity was that SRs were “3-year plans reviewed every 2 years”. Which made the “plan” for year 3 of any SR disappear into the fog again. It would be superseded by the next SR.

And then the next Comprehensive SR (2007) was allowed to run for the full 3 years.

So what was going on?

The immediate answer was simply politics. SR 2000 was brought forward a year so it would be before the 2001 general election (GE). SR 2007 was pushed back to 3 years and several months to allow Gordon Brown to assume office as PM. Labour’s SR 2010 never happened because they didn’t want it before the GE this time.

After 2010 although SRs continued under the Tory-led and Tory governments, they became even more irregular: there were SRs in 2010; 2013; 2015; 2019 and 2021 (confusingly called SR 2020).

There is a second, important, reason for this irregular pattern is SR actual duration (2,2,2,3,3,2,4, 1, 5 and 2 years so far). It happens because it can. Like many other reforms of Government in the UK SRs have no standing in our constitution or laws. Governments can change them by administrative fiat – unlike in most other advanced democracies that have legally fixed budgetary cycles.

SPENDING REVIEWS & BUDGETS

Which brings us to the relationship between Spending Reviews and Budgets – which not as direct as maybe it should be?

Spending Reviews are only statements of intent by the Government. They have to be implemented through the annual Budget and then translated into the Estimates – which is the way the House of Commons approves Government spending.

Many experts have complained for years that the ways in which spending plans are set out in Spending Reviews, Budgets, and Estimates differ considerably – making very difficult to track whether spending intentions have been followed through. This is also true of the annual Departmental Report & Accounts, which often report actual spending in different formats to the Estimates – again making any tracking almost impossible.

There was an attempt to try to introduce “line of sight” reforms in 2009 but it is very unclear how well any of it worked or was implemented.

It is worth noting at this point that even the annual Budgets – which for many years always happened in March – have moved around the Parliamentary year like ping-pong balls over the past few years. Again, because there is nothing to stop Governments shifting them around.

What is clear is that annual Budget spending plans frequently departed from what was supposed to be happening that year according to the previous Spending Review. This was further compounded by changes to spending plans announced in Pre-Budget Reports to Parliament and by ad hoc announcements by Ministers.

Most famously the then Prime Minister, Tony Blair, announced in 2000 (during a TV interview) an intention to raise UK health spending by £12bn – to the EU average of 8% of GDP, from about 5%, by 2006. 

Even when the House of Commons is asked to approve Government spending in the Estimates they have, in reality, very little control. As this House of Commons Library ‘explainer’ of the Estimates process says:

Source: https://commonslibrary.parliament.uk/the-estimates-parliaments-role-in-authorising-government-spending-plans/

BUT HAVE THEY WORKED?

The New Labour government had multiple objectives when they introduced Spending Reviews in 1997/8. They were supposed to be part of a much more strategic way of managing Government and public services, including better medium-term planning and measurement of performance.

It is less clear why subsequent governments since 2010 have continued using the Spending Review system because they have never really set out – as New Labour did in great detail – what they were trying to do. 

Spending Reviews have clearly not ‘worked’ in the sense they have never really been implemented in the way they were supposedly intended.

There have also been some unintended, and unwelcome, side-effects that ran contrary to the intentions of more stable strategic planning and management of public resources.

For example, although Departmental overall budgets may have been more stable in total, in detail Departments had much more flexibility for moving resources around – and they did. Ironically this sometimes seemed to produce morefinancial instability as money cascaded down to front-line public services.

But it is also worth considering an old mantra from strategic management: “it’s not the plan that’s important, it’s the planning”. In other words, whatever the formal shortcomings, have Spending Reviews help Governments – politicians and public servants – think and act more strategically?

I think that was certainly true – in very different ways – for two periods. For the New Labour government between 1997 and 2008 SRs undoubtedly helped their strategy for repairing and expanding public services – especially health and education. And in a very different way the SRs of the Tory-led Coalition from 2010 to 2015 helped their austerity strategy.

The 2007-8 global financial crisis clearly blew the Gordon Brown government off course and their postponement of an SR before the 2010 General Election signified their lack of a strategy. And since 2015 it has not been at all clear what the Cameron-May-Johnson governments have been using SRs for or why they have continued them? To my knowledge no-one has ever tried to explain what they see SRs as doing?

REFORMING SPENDING REVIEWS (AND BUDGETS)?

The aim of trying to have more sustained, strategic, stable spending plans that allow for more investment and flexible use of resources in a laudable one. Some might think it is impossible, and overly rigid, but there are good reasons to think some progress can be, and should be, made.

It is especially hard in the UK context however. An overly powerful executive branch of government, with very few restraints on its power to arbitrarily alter processes and contents of spending plans, make Spending Reviews a very hazardous exercise.

As noted in the House of Commons Library Briefing mentioned above in many other democracies the Parliament or Congress exercises much greater scrutiny or control over public budgets and the executive has much less of a free-hand. They UK ranks 45th (out of 115 countries) for the amount of power the legislature exercises over budgets (so much for “parliamentary sovereignty”?).

Obviously there is not much hope of any changes like this under the current Government. But Opposition parties, devolved and local governments and policy communities ought to be thinking about this and, if possible, coming up with reform proposals that command wide support?

There are some obvious changes that could enhance spending and budgetary processes and make them far more ‘deliberative’.

Firstly, the whole Budget and Spending Review processes could be put on a statutory basis with clear, fixed, time-tables.

Second, they could become much more open and transparent. Publishing draft Budgets and SRs, and allowing time for much greater Parliamentary scrutiny and consultation with other tiers of government and civil society, would change the dynamic considerably. Making the approval process in Parliament more open (e.g. by allowing amendments for example) would help too.

Thirdly, putting resources at the disposal of Parliament to properly analyse tax and spending policies. Turning the Office for Budget Responsibility into a Parliamentary Budget Office (similar to the Congressional Budget Office in the USA) would go a long way to doing this.

Obviously there is little chance of this happening under the current Government who seem intent of tilting the playing field even further away from Parliament. But Opposition parties, devolved and local government, and many in civil society have a great deal to gain from a more open, democratic, ‘getting and spending’ process in UK government. In this case, it is broke and it needs fixing. At the very least a coalition could be built around possible reforms?

[This article is a substantially extended and edited version of one that first appeared on the Civil Service World website on 27th October 2021]

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