The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
"The Government does not fully understand the impact of the spending cuts it is making. It is focusing on short-term priorities rather than the longer term view.
"The 2010 spending review concentrated on what could be cut quickly, rather than an assessment of the likely impact of the cuts. For example, it cut spending on capital projects from £60 billion in 2009-10 to a planned £38 billion in 2014-15, even though this risked undermining the Government’s objectives of securing jobs and economic growth.
"Decisions on where to spend or cut are inevitably constrained by political and contractual commitments. Commitments on health and aid meant that 60% of government spending was protected and departments accounting for the other 40% bore the brunt of cuts.
"Departments often lack information on costs, or accurate benchmarks. This means the Treasury struggles to assess the cost effectiveness of proposed spending and make meaningful comparisons.
"Too often, departments concentrate on their own self-interest, protecting their turf rather than ensuring joined up thinking across government. There is no evidence of clear thinking on how one decision to save money in one budget area might lead to an increase in expenditure elsewhere.
"For example, the higher rents proposed under the Affordable Homes Programme may well impact on the housing benefit bill. The Treasury must incentivise departments to work together on cross-government issues.
"High staff turnover and a lack of commercial skills at the Treasury are undermining its ability to scrutinise departmental budgets effectively. Only eight of the 52 staff on the Treasury spending teams we looked at lasted more than 20 months.
"This enables some departments to play games with the Treasury, for example, by deliberately holding back information. The Treasury needs to up its game to ensure proper scrutiny of what departments are up to.
"There is also too little external scrutiny in the budgetary process. Parliament does not examine spending proposals, which could help to drive up their quality. Select committees could do more to challenge departmental spending plans, but lack the information needed to undertake this role."
Margaret Hodge was speaking as the Committee published its 34th Report of this Session which, on the basis of evidence from HM Treasury and the Head of the Civil Service, who also represents the Department of Communities and Local Government, examined budgeting in government.
The Government needs strong budgetary systems to be able to control and manage public spending and to provide high quality public services that offer value for money to the taxpayer. Departmental spending is approved by Parliament in the annual budget process based on the multi-year budgets set in the spending review. The 2010 Spending Review set a four-year spending total for each department. The Spending Review focused on reducing public spending and delivering the coalition Government’s programme.
The Treasury managed the Spending Review by collating bids from departments and challenging submissions. The process built on the experience of previous CSRs and was better managed. However, we continue to have concerns about the capacity of the Treasury to effectively challenge departments, and Government continues to take some decisions which will not ensure best value for money.
Departments and the Treasury failed to take a longer term view on spending, making cuts in those budgets that were easiest to cut. For instance, whilst Treasury improved assessment processes to be able to rank capital projects, the overall level of capital investment was cut from (£57 billion in 2009/10 to a planned £41 billion in 2014/15. Resource expenditure as a whole will increase in nominal terms, albeit at a much slower rate. These decisions may not have been the best to meet the Government’s growth objectives.
There were gaps in data which made it difficult to compare options or benchmark spending proposals. There were no incentives for departments to collaborate on cross-government issues. There was no evidence of clear thinking on how one decision to save money in one budget area might lead to an increase in expenditure elsewhere. There was also evidence of game-playing.
Decisions on where to spend or cut rest with Ministers and cannot be divorced from the political process. But these decisions need to be informed by rational analysis. Officials must do more to provide Ministers with reliable and comparable information to help them weigh up the effect of different spending options.
The Committee welcomed the Treasury’s commitment to follow up the National Audit Office’s recommendations for improvement. The Treasury will need to implement the findings of this report in time for its next spending review.