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Coalition does not understand impact of cuts, say MPs

By Richard Johnstone | 8 March 2013

The Public Accounts Committee has criticised the government’s deficit reduction plan, warning that the coalition ‘does not fully understand’ the impact of public spending cuts.

Photo: Sam Kesteven

In Managing budgeting in government, the MPs concluded that Whitehall lacked ‘strong budgetary systems’ to control and manage public spending and ensure value for money to the taxpayer.

They pointed out that in the 2010 Comprehensive Spending Review, the government had committed itself to spending cuts totalling £203bn over four years but had focused entirely on reducing costs. As a result, both the Treasury and individual departments had failed to take a longer-term view on spending and simply made the easiest cuts.

For instance, although the Treasury had improved its processes to measure the economic impact of infrastructure projects, the overall level of capital investment was cut from £57bn in 2009/10 to a planned £41bn in 2014/15.

This might not have been the best way to meet the government’s growth objectives, the report said.

The PAC also found gaps in the data provided by departments in the Spending Review, which made it difficult for the Treasury to compare options or benchmark spending proposals. And concerns were raised that the Treasury had been unable to effectively challenge figures provided by ministries, leading to decisions being taken that were not best value for money.

There was also ‘no evidence of clear thinking’ across government on how a decision to save money in one budget area might lead to an increase in expenditure elsewhere.

Committee chair Margaret Hodge said the Spending Review had focused ‘on short-term priorities rather than the longer-term view’ and on capital spending cuts that risked ‘undermining’ the government’s economic growth objectives.

Commitments to increase both health and international aid spending in real terms, alongside other spending promises such as pensions, meant that 60% of government spending was protected. Departments accounting for the other 40% then had to bear the brunt of reductions, Hodge said.

‘Departments often lack information on costs or accurate benchmarks,’ she added. ‘This means the Treasury struggles to assess the cost-effectiveness of proposed spending and make meaningful comparisons.’ 

This also left departments to concentrate on ‘protecting their turf’ rather than developing joined-up government, she added. ‘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.’

Responding to the report, a Treasury source said the PAC had ‘chosen headlines over hard facts’.

‘The government’s departmental spending plans have come in exactly on forecast since 2010. Even the National Audit Office, whose report was the basis for this, said government budgeting compares well with budgetary practice.

‘Long-term planning is at the heart of the government’s capital plans which set out a long-term infrastructure pipeline worth a total of £310bn, and includes major projects which will be delivered over the next few decades.’

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