By Richard Johnstone | 27 April 2012
The Public Accounts Committee today urged the Treasury to exercise greater control over Whitehall spending cuts, including setting central standards for both the planning and reporting of cost reductions.
The MPs said that government departments faced a ‘major challenge’ in making the cuts required by 2014/15.
In a report examining how departments coped in the first year of reductions, (2010/11), the committee found they ‘successfully lived within reduced budgets’, which in total were cut by £6bn, or 2.3% in real terms.
However, most departments now faced a more significant challenge in cutting spending by 19% over the four years of the Comprehensive Spending Review, which started in 2011/12.
The report, Cost reduction in central government: summary of progress, warned that without clearer information on departments’ costs and work, the reductions might have a greater than intended impact on frontline services. Both the Treasury and the Cabinet Office had an ‘essential role’ to play in leading a structured cost reduction programme, the MPs said, but neither had ‘a firm enough grip’ on the overall plans.
But a Treasury spokeswoman told Public Finance that the new fiscal rules for government set out earlier this week represented a move towards the ‘tightest financial discipline that has ever existed in Whitehall’.
The committee also criticised individual departments’ financial planning, saying they had not been clear on how either they or their arm’s-length bodies would achieve cost reductions. They also lacked clear information on costs and had difficulty linking inputs with outputs in their work, which meant any cuts ‘may not maximise efficiency’.
The National Audit Office yesterday raised a similar concern about the Home Office’s financial management.
Committee chair Margaret Hodge said that the departments had ‘started well’ in their ‘major challenge’ of cutting spending.
‘They have lived within the reduced budgets set for them for the first year of the cost reduction programme.’
However, this was ‘only a first step’ and implementation of the full cuts programme required changes. ‘What is needed is an overarching strategic framework which, among other things, identifies in particular the impact of a cut in one department on expenditure in another, and the long-term impact on value for money and expenditure of short-term decisions to live within budgets.
‘The Treasury needs to get a grip at the centre on the approach taken by departments otherwise government will impose arbitrary cuts and fail to secure value for money.’
The Treasury spokeswoman said that it welcomed ‘the PAC's recognition of the success of departments in delivering budget reductions so far’.
She added: ‘The Treasury has a very clear and systematic approach to controlling public spending. It also constantly seeks to improve this, which is why earlier this week the chief secretary set out new tighter rules to improve financial management in Whitehall and help departments live within their existing budgets.
‘On top of this, spending reductions are supported by the Efficiency and Reform Group in the Cabinet Office, who are on track to help departments deliver even greater savings this year through a wide-ranging and ambitious reform agenda.’
