Monthly Archives: July 2024

The Government’s arrangements for planning, budgeting, spending and monitoring involve HM Treasury, departments and the Cabinet Office. HM Treasury allocates funding to departments through annual budgets and multi-year spending reviews. Departments then use those funds to deliver programmes and activities. How are Spending Reviews carried out, and why are they important for rural communities? Jessica Sellick investigates. ………………………………………………………………………………………………..

Spending Reviews are key political and fiscal events that attract widespread public interest. HM Treasury carries out Spending Reviews to allocate funding across Government priorities, to set limits on spending, and to define the main outcomes that the public can expect the Government to achieve with its resources. 

Spending Reviews act as both a ‘spending control’ (by setting limited on departments, known as Departmental Expenditure Limits) and as a way of maximising value-for-money (understanding how much different options cost and which will enable Government to achieve its goals). Spending Reviews tend to develop multi-year plans which are then aligned to annual budgets. 

It is worth noting that not all spending decisions take place at Spending Reviews – with HM Treasury making announcements on issues that need addressing sooner than through regular budget setting processes. In addition, Spending Reviews themselves have no legal basis, rather they are ‘statements of intent’ which are then implemented through an annual ‘estimates’ process.   

When and why were Spending Reviews introduced, how are they carried out, and what do they mean for rural communities?   

When and why were Spending Reviews introduced? Under the strapline ‘modern public services for Britain: investing in reform’, the first Comprehensive Spending Review was carried out back in 1998. A White Paper set out overall plans for each Government department covering the period 1999-2002; and this included public service agreements between departments and HM Treasury about how these overall totals would be spent, with clear objectives, output and efficiency targets set: 

“Our aim is to reallocate money to key priorities; to change policies so that money is well spent; to ensure that departments work better together to improve services; to  weed out unnecessary or wasteful spending…People want more money spent on education, health, crime prevention and transport. They will get it. We have allocated extra resources to these priorities. But is has required tough choices. It has required a clampdown on extra spending outside of health and education for the first two years. Even now some departments are not getting nearly as much money as they would like…Invest and reform are the twin themes of this document. It is the people’s money. It must deliver better services to the people”, Foreword by the Rt Hon Tony Blair MP, Prime Minister (pages 506).    

Prior to 1998 successive Chancellors were given responsibility for deciding on tax and spending in response to the economic challenges and opportunities of the day. 

Since 1998, while the main purpose of Spending Reviews in allocating budgets has not changed, they have shifted to consider Government spending in the wider context of taxation and fiscal sustainability. 

While Spending Reviews allocate high level departmental budgets, over the course of a Spending Review Period, other fiscal events such as Budgets allow Governments to make changes to spending plans if and where necessary. Between May 2008 and April 2010, for example, HM Treasury led The Alignment Project. This was set up to align budgets, estimates and accounts in a way that would allow HM Treasury to control what was needed to deliver the fiscal rules and avoid any duplication.   

Some of the changes made to the Government’s financial management included: 

• Targets for the deficit and Government debt being judged over a fixed period of time, rather than over an economic cycle. 
• The establishment of the Office for Budget Responsibility (OBR) which has a duty to examine and report on the sustainability of the public finances. 
• A move away from ‘End Year Flexibility’ wherein departments could carry forward any under-spend from one year to the next, to a system of ‘Budget Exchange’ wherein there is no scope to carry forward under spends unless they are forecast and approved in advance of the Supplementary Estimate. Limits were also introduced in the amount departments can carry forward (e.g. 1% of resource DEL and 2% of capital DEL). 
• Departments were given structural adjustment priorities [main objectives] and structural adjustment plans [action plans] to achieve outcomes [monitored through Public Service Agreements between the department and HM Treasury]. These all formed part of a department’s overall business plan. Over time, these documents were replaced by Single Departmental Plans (SDPs) and then Outcome Delivery Plans (ODPs).   

Alongside Spending Review 2013, HM Treasury published a Financial Management Review. This sought to improve the tools and techniques available to it to make good decisions during subsequent reviews. The Review considered: 

• How to develop a better understanding of the costs of activities.  
• How to define standards for costing and management information. 
• How to accelerate current initiatives required to support a common framework, including adopting the common chart of accounts. 

If one compares the total spending set out in a Spending Review with the actual spend, over both the 2010 and 2013 Spending Review periods, departments in fact lowered their overall spending to meet agreed spending controls. 

Spending Review 2015 centred on agreeing Government plans for eliminating the deficit and safeguarding Britain’s long-term economic security. While they tend to be multi-year, Governments can introduce shorter reviews. For example, during the COVID-19 pandemic the Government conducted a one-year spending review instead of a multi-year review. 

The last Spending Review was carried out in 2021 and combined with the Autumn Budget. This focused on delivering the Government’s ambition to level up and reduce regional inequalities: 

“With the economic recovery underway and emergency support winding down, the Budget and SR [Spending Review] sets out the government’s plans to build back better over the rest of the Parliament. It does so by investing in strong public services, driving economic growth, leading the transition to net zero, and supporting people and businesses…Taxpayers’ money will be spent where it makes the most difference to people’s daily lives: creating high-wage and high-skilled jobs, reducing NHS waiting lists, putting more police on the streets, upgrading roads and railways, and building new homes, hospitals and schools” (page 5). 

The Spending Review set departmental budgets up to 2024-2025. The Spending Review also required departments to save 5% against their day-to-day central budgets in 2024-2025 as part of an action to drive out inefficiency. The strapline of the Spending Review was around ‘recovery, reform and resilience’. The 2023 Budget made some updates by including funding for a package of measures aimed at improving childcare.

On 5 July 2024 the Labour Party won the general election and Sir Keir Starmer became the Prime Minister of the United Kingdom. The new Government has adopted a new approach of being ‘mission-driven’, with the King’s Speech setting out legislative plans for the Parliament around economic stability and growth, energy, borders and anti-social behaviour, health, and breaking down barriers to opportunity. 

The Institute for Government estimates that the current spending plans set out by the previous Government, plus the additional spending commitments included in the Labour manifesto, indicate that day-to-day departmental spending will increase by 1.2% per annum in real terms between 2025-2026 and 2028-2029. Analysis also suggests real term spending cuts of 2.4% to unprotected areas of day-to-day public spending if spending commitments from the previous Government (i.e., around NHS workforce, increasing aid and defence spending, expanding childcare provision) are kept. While the Government has announced a review of UK Armed Forces, the Chancellor Rachel Reeves has asked HM Treasury to produce an assessment of the state of spending inheritance so she can better understand the scale of the challenge ahead. 

How are Spending Reviews carried out? The Institute for Government describes four key steps in the process: 

1. The chancellor sends letters to departmental secretaries of state formally inviting submissions to be made for their departments’ spending for the years ahead. These letters usually set out the key priorities that Number 10 and HM Treasury have agreed departments should focus on. 
2. The Treasury will typically ask the OBR for a forecast ahead of a spending review. This will show the Chancellor and Prime Minister whether they are going to meet their fiscal rules and, if so, how much ‘headroom’ they will have. This forecast, along with the Government’s tax plans, will determine how much the Government will spend over the spending review period [the overall ‘envelope’].
3. Government will then begin the process of determining how to allocate the envelope. In practice, the size of the envelope and level of taxes may be revisited later down the line to accommodate high-priority spending. Initial bids from departments are sent to the relevant spending team within HM Treasury. Some bids are sent to specialist teams within HM Treasury: there are teams that will look at bids relating to capital expenditure or workforce and pay from all departments, for example. Comments are then fed back in an iterative ‘challenge process’ between HM Treasury and each department.
4. HM Treasury spending teams then produce briefings and advice for Treasury ministers to prepare them for bilateral negotiations (often led by the chief secretary to the Treasury) with departmental secretaries of state. The outcome of these decisions is then reflected in settlement letters issued by the chancellor to departments.

Typically, Spending Reviews are driven by civil servants from strategy and policy developing ideas that are then evaluated by economists in HM Treasury for their potential costs and benefits. The Ministry of Justice (MoJ) is looking at its future spending bid from a user-centred perspective. Since September 2023, a small team within the MoJ has been looking at how to deliver digital transformation in the justice system in ways that provide a better experience for users. This includes testing ‘quick and dirty ideas’ with users – to see which have the greatest potential for improving service delivery through to 2030; and working with an economist to understand how a user-centred approach can weave into the more static requirements of a Spending Review bid. 

What do Spending Reviews mean for rural communities? Spending Reviews, while seen as a dense and impervious tool, are an important means for Government to control total expenditure. These decisions translate to priorities and funding decisions which impact upon rural communities.    

Spending Reviews typically allow for representation, this is a written representation that comments on Government policy and/or suggest new policy ideas for the Review. Representations can be made by an interest group, individual or representative body to HM Treasury. During the last Spending Review (2021), for example, representations were made by organisations including the Rural Services Network (RSN), Plunkett UK, the Local Government Association (LGA), the National Association of Local Councils (NALC) and  Wildlife and Countryside Link.  

The RSN made the case for improving outcomes in public services in rural areas which it described as woefully under-resourced by central government compared to urban areas. NALC asked the Government to help places help themselves by supporting the unlocking of parish power to level up and rebuild communities. Levelling up was also a theme in Plunkett UK’s submission which asked for a separate activity and/or the ring fencing of existing resources to support rural areas at risk of being left behind. The LGA’s submission contained proposals for Defra to consider around flooding funding, nature and biodiversity. Similarly, Wildlife and Countryside Link made recommendations for how Government could realise its nature positive ambitions.   

Subsequently, the RSN reviewed the rural impacts of the last Spending Review. While funding for local government as a whole was better than anticipated, the allocation did not result in rural local authorities receiving their fair share. Similarly, levelling up and UK Shared Prosperity funding focused on capital allocations with little evidence of these resources being rural proofed.  

As we move towards a new Spending Round, what do we need to do to maximise investment in rural communities? For me, there are four starting points: 

1. What rural commitments do we want to see from Government?  What do we think about existing policies, and what suggestions do we have for new policies and proposals that would support people to live and work in the countryside? 
2. Rural communities sit outside the boundaries of single departments – a Spending Review is an opportunity to encourage departments to work together and with stakeholders to achieve cross-departmental outcomes. What cross-departmental work needs to continue, start, or stop, to deliver better outcomes in rural places?  
3. There have been consistent calls to link spending decisions to outputs, outcomes and value-for-money. How can we improve real-time data collection and monitoring so we better understand which policies and proposals are working in rural areas, which ones are not, and why?  
4. The Spending Review focuses on the priorities that can be delivered during the period it covers. While budgetary processes cover the short and medium term, public services often have spending implications well beyond this time horizon (e.g. education, transport, health and social care). How can policies and proposals be costed and presented which enable HM Treasury and wider Government to consider the impact of spending decisions in rural communities and places beyond the Spending Review period?

How can we collate this information to make the best possible representation for rural communities?    

Where next? The Institute for Government has indicated the urgency for the new Government to take decisions over spending. In autumn 2024 the NAO is due to report on the Government’s Spending Review planning and framework. This will include work on long-term value-for-money, and key lessons learned based on the outcomes examined from previous spending rounds. With a new Government in place, if we want to maximise public funding for rural residents and businesses, there is work to do on the data/evidence, innovation, costs, delivery and outcomes of the policies and proposals we want to see (now and in the future).  

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Jessica is a project manager at Rose Regeneration and a senior research fellow at The National Centre for Rural Health and Care (NCRHC). She is currently evaluating a service that supports older people to maintain their independence; and reviewing neighbourhood-based initiatives (NBI). Jessica also sits on the board of a charity supporting  rural communities across Cambridgeshire and is a member of her local Patient Participation Group. 

She can be contacted by email jessica.sellick@roseregeneration.co.uk. 

Website: http://roseregeneration.co.uk/https://www.ncrhc.org/ 

Blog: http://ruralwords.co.uk/ 

Twitter: @RoseRegen