Treasury Committee publishes report on the Spending Round 2013

08 October 2013

The Treasury Committee has today published a report containing conclusions and recommendations from its inquiry into the 2013 Spending Round.

During this inquiry, the Committee also returned to points raised in its report on the 2013 Budget including the ring-fencing of several departmental budgets, the Government’s Help to Buy mortgage guarantee scheme and the leaking and pre-briefing of Budget information.  

A full list of conclusions and recommendations can be found on pages 42-45. Some of these, with quotations from the Chairman of the Treasury Select Committee, Andrew Tyrie MP, in italics, include:

1. The Spending Round

"The acrimony and delays that have characterised previous Spending Rounds did not materialise this time.

The size of this achievement should not be underestimated, particularly given the scale of the budget reductions being imposed across a large number of departments."

It has been put to us that coalition politics has encouraged a more formal process in the Spending Round. Whether true or not, the fact that the Spending Round was concluded without delay or apparent acrimony is noteworthy in view of the scale of the challenge, which is unprecedented. (Para 5) 

2. Ring-fencing

"The Treasury Committee remains concerned about the ring-fencing of several departmental budgets. 

Ring-fencing places the full burden of financial stringency on non ring-fenced departments which, as each year’s reductions on their budgets take effect, have to bear a heavier burden.  It can therefore result in inadequate financial discipline in some departments and ever greater stringency in others.

The risk is two-fold. First, that ring-fenced departments may be subject to less financial discipline and scrutiny than non ring-fenced departments. Second, that as each year goes by there is a risk that ring-fencing distorts the allocation of resources between Government priorities."  

In our Report on the 2013 Budget, we argued that ring-fencing tends to reduce the scrutiny of ring-fenced spending, can lead to waste or worse, and if persisted with will distort the balance of spending as a whole. As the Chancellor argues, ring-fencing is an expression of political preference supported by the ballot box. However, spending in ring-fenced departments may receive less scrutiny than that in departments competing for resources. The Government must remain alert to this danger. The Government should place in the public domain its own assessment of the value for money of ring-fenced departments and its rationale for keeping the ring-fences. (Para 19) 

3. Release of Budget information 

"Sir Nicholas’ report was unconvincing. The Committee can see no public interest in pre-releasing Budget and Autumn Statement information. Pre-release has been developed by successive Governments with politics, not economics, in mind. This practice should end." 

Sir Nicholas offered no justification in his report for confining the ban on the pre-release of Budget information to "core" information, and the Committee is not convinced that a clear distinction between core and non-core information can always be drawn. The scope that exists for politically motivated judgements about whether data is core or non-core could be subject to abuse. There would also be scope for other information to be released principally for reasons of obtaining good coverage rather than in order to explain the "context" of the Budget. In addition, allowing the Government to pre-brief on certain topics, without the "core" data, leaves room for the Government to manage the message of Budgets and Autumn Statements to an unacceptable degree. (para 75)

There is no public interest in pre-releasing Budget and Autumn Statement information, whether Ministers classify it as "core" information or not. The Treasury should not pre-release the Budget or Autumn Statement. (para 76) 

4. Help to Buy

"The Government has yet to allay the Committee’s concerns about the Help to Buy mortgage guarantee scheme. It may not have the effects intended over its proposed three year life.  The decision to bring the scheme forward by three months does not alter our concerns.

Given the chequered history of Government interventions in residential property, great care will need to be taken in both the construction and running of this scheme. 

Mistakes could distort the housing market or carry threats to financial stability.

The Government needs to clarify whether anything has been added by the recent announcement to the FPC’s existing power to make recommendations to the Treasury.  It is not clear at the moment. The Treasury stated that the FPC’s role remained advisory.[1] Others have suggested that the recent announcement provides the FPC with authority to cancel the scheme.[2] 

The Chancellor proposed annual FPC reviews in September.  This is welcome.  Nonetheless, the Treasury Committee will expect the FPC to use its power of recommendation where appropriate. This should be at the time it considers that a risk to financial stability has manifested itself, not just at annual intervals. 

The political pressure to extend the scheme could be immense. It is therefore all the more important that the FPC’s role be clarified as soon as possible." 

The Government’s response to our Report on the 2013 Budget has done little to allay our concerns that the primary effect of the guarantee scheme, at least in the short to medium-term, could be to raise house prices rather than stimulate new supply. Furthermore, we continue to believe that the government of the day will face strong incentives to extend the scheme, with the attendant risk that the mortgage guarantee scheme becomes a permanent feature of the UK mortgage market. Following Committee scrutiny it transpires that the so-called “double lock”—whereby we initially understood that the FPC would have a veto over the continuation of the scheme after three years—is not a lock at all. Our understanding is that the government of the day, if it chose to extend the scheme, could do so despite any objections raised by the FPC. The Government should provide more precise information on the operation of the so-called “double lock” and, in particular, re-examine the case for giving the FPC an explicit veto over the continuation of the scheme. (para 56) 

5. The economic case for High Speed 2 

"There appear to be serious shortcomings in the current cost-benefit analysis for HS2. The economic case must be looked at again. 

The Bill should not proceed until this work has been done and the project has been formally reassessed by the Government. 

At £42.6bn, including a large contingency reserve, the construction cost of the project has increased by 17 percent even before it has started. It is a huge infrastructure project.  

A more convincing economic case for the project is needed.  We need reassurance that it can deliver the benefits intended and that these benefits are greater than those of other transport schemes – whether in the department’s project pipeline or not – which may be foregone." 

On 11 September 2013, HS2 Ltd published additional material on HS2. We will wish to examine whether the material published by HS2 Ltd, and any further material published by the Government, meets the following requirements:

i. The National Audit Office has highlighted a number of problems with the existing cost-benefit study that, combined with the increased cost of the project, could have a large impact on its value for money. The Treasury should not allow HS2 to proceed until it is sure the cost-benefit analysis for HS2 has been updated to address fully the concerns raised by the National Audit Office.

ii. The Treasury has based the need for HS2 upon the existence of benefits that are not captured by the existing economic appraisal. The Treasury should publicly quantify these benefits.

iii. Prior to any decision by the Treasury to proceed with HS2, it should publish its own comprehensive economic case supporting its decision.

- Once these requirements have been met, the Government should formally reassess the project before deciding whether to proceed. In the event that it does proceed, Parliament can then consider the hybrid Bill in the light of that reassessment. (Para 67)

Further Information

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