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Central intelligence - Curiouser and curiouser, by Colin Talbot

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29 July 2005

Gordon Brown might mean what he says, but does he say what he means? The government's Alice in Wonderland approach to its Spending Review timings has a lot more to do with politics than economics

When are 'firm three-year plans' that 'provide a more stable foundation for managing public services' neither firm nor stable? Answer: when they are organised by the Treasury.

These quotes are taken from the very first Comprehensive Spending Review, published by the government in 1998. Last week it used almost identical terms to announce that public service spending totals for 2007 to 2008 — the third year of the current review period — would be adhered to.

So why did the government feel the need to announce that their 'firm' spending plans were still on track? What is going on? To understand, we need to go back to the beginning.

In 1998, Chancellor Gordon Brown conducted the CSR in complete secrecy. This delineated a three-year spending plan. The next Spending Review should have been published in July 2001. Instead, it appeared a full 12 months early.

Year three of the 1998 plan was scrapped. In its place came the first year of a new but equally 'firm' three-year plan for 2001 to 2004.

Why did this happen? The simple if somewhat cynical answer is that no-one had realised that a July 2001 Spending Review announcement would have taken place after the general election, pencilled in for May 2001. Labour's generous new spending plans would have offered little electioneering value after the event. Suddenly, in the Treasury's Alice in Wonderland-speak, 'firm three-year plans' became a 'three-year planning cycle reviewed every two years'.

One other small but significant change in wording: in 1998 we had a 'Comprehensive Spending Review'. Since then they have been relabelled as mere 'Spending Reviews'.

We are promised another CSR in 2007, offering a fundamental zero-based public spending evaluation. It would not be too outlandish to assume that after CSR 2007, the 'Comprehensive' will go out, though the Spending Review will remain.

Any speculation that the most recent shift — emphasising the current plan's 'firm' nature — has anything to do with politics, changes at the top or election cycles is obviously pure cynicism.

The next general election will be in 2009 or 2010. The next set of spending plans will be announced in July 2007 and — assuming they then revert to two-year cycles — July 2009. This would allow an election to be held in either autumn 2009 or spring 2010.

Now add this to the news that Brown wants to redefine the economic cycle, which has led critics to question whether or not the chancellor's self-imposed 'golden rule' has been broken.

Forget about the golden rule issue for now — Labour has just been re-elected, and though Brown may squirm a bit over the 'cooking the books' accusation, it is not a big problem for him.

Instead, assume for a moment that the dates shift is genuine, that the cycle really did start a bit earlier. This would mean that the next cycle also starts earlier — giving us an economic up-turn, increased tax revenues and improving public finances in, say, 2008 or 2009.

So, assuming a late handover from Blair to Brown and an economic upswing, when would you want to make the big spending announcements?

One thing you can say about Brown is that he thinks strategically — at least when it comes to politics.

But what was CSR planning originally supposed to do? In part it was to 'provide a more stable foundation for managing public services'. Has it? Well, no – or at any rate, there is little evidence for such a claim.

Government departments might have firm two-year budgets (and now get a third year), but the benefits have rarely been felt by local government and other public service providers.

Remember that Whitehall supplies only about 10% of public services. The rest go through local government, the National Health Service, the police, the fire service and so on.

At this level, research and anecdotal accounts both suggest that frontline service managers are still saddled with the dreaded 'annularity' — not knowing until the start of each year what they are going to get but still having to spend it all in that same 12 months.

In fact, there is evidence that matters have worsened. Because Whitehall departments know what their total budgets are in advance, they can play around with redistributing money as much as they like.

The net result is that managers at the business end are even less certain about how much they will get next year, as priorities and mechanisms change so rapidly at the top.

The fact that Whitehall knows how much it has to play with in 2007 doesn't mean that your local town hall does.

Colin Talbot is professor of public policy at Nottingham University and director of the Nottingham Policy Centre

PFjul2005

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