COMMONS

Treasury Committee publishes its report on the Spending Review

26 November 2010

The Treasury Committee published its Report on the Spending Review 2010 on Friday 26 November. The Report provides cross-party commentary on the Government’s Spending Review, which will shape public policy for the coming Parliament.

The Report notes that scrutiny of the Government’s consolidation reform plans will be one of the Committee’s key tasks over the entire course of the Parliament, and that it expects to conduct regular enquiries into the Government's fiscal and expenditure planning, and the OBR's forecasts.

Committee Chairman, Andrew Tyrie, said:

"Today’s report is a first step towards a higher level of scrutiny of public spending than previously undertaken. Whilst there is general party political agreement that consolidation is necessary, there continue to be differences over its precise method, timing and pace. It will be a major challenge to ensure that all parts of the United Kingdom benefit from future growth. The Government has announced some policies designed to help achieve this, and we will monitor their progress closely."

Process

The Report notes the use of the Public Expenditure Committee, and a wide range of systems of meetings and more select groups, such as the "quadrilateral", formed of the Prime Minister, the Deputy Prime Minister, the Chancellor and the Chief Secretary. It notes that these arrangements, reflecting the coalition arrangements, resulted in a collective decision-making process.

Spending

The Report examines some of the key spending decisions. It concludes that although ring-fencing might fulfil electoral promises, it could also lead to allocative problems across government as a whole, and reduce scrutiny of the efficiency of ring-fenced departments. The Committee notes that the decision to use the NHS budget for social care and the DfID budget to support fragile and conflict affected states suggested that ring-fencing had not been absolute.

Andrew Tyrie said:

“There has been a great deal of ring-fencing in the current spending review. The risk is that ring-fencing distorts spending priorities, particularly in a radical review such as this. I note signs that the Government has considered how the budget in ring-fenced departments can be used to support wider objectives.”

Defence

The Report examines the allocation of the defence budget at some length. The Committee was particularly concerned by the aircraft carrier contract with BAE, both in itself and, as a symptom of wider difficulties in controlling the defence budget. Over the course of the inquiry, the Committee elicited new information about the contract, and the Report notes that in response to a question from the Chairman of the Committee the Prime Minister has agreed to provide the Committee with the maximum amount of information possible.

Andrew Tyrie said:

“Successive governments have struggled to deal with an overcommitted defence budget. The Treasury should draw on the lessons from the seemingly ‘unbreakable’ carrier contract to analyse all future Ministry of Defence procurement to ensure that value for money is being obtained, particularly when little competition exists in the market.”

Distributional analysis

The Committee welcomes the Treasury’s willingness to increase its distributional analysis, as previously recommended in the Committee's report on the June budget. Today’s Report analyses the differences between the Treasury work and that done by the IFS, and calls on the Treasury to consider whether it can adopt some of the IFS’s proposals. It also recommends that the calculation underpinning the analysis should be published, to provide transparency and encourage debate.

Andrew Tyrie noted:

“Analysis like this had previously been prepared for Ministers, but not made public. The Treasury has now provided more information than ever before. We welcome this openness, and see scope for its further extension.”

“Progressive” and “fair”

The Report notes the difference between "progressive", a technical economic term, and "fair".

Andrew Tyrie said:

“It would have been extremely difficult for the overall consolidation to have been progressive. Fairness and progressivity are two different things. Decisions that are technically regressive are not necessarily unfair. Whether or not the consolidation is fair is, and will remain, the subject of political debate and the Treasury Committee will continue to take evidence on it.”

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