By Richard Johnstone | 8 October 2013
Continuing to ringfence NHS and schools spending is placing ‘the full burden of financial stringency’ on other Whitehall departments and could lead to waste in protected areas, the Treasury select committee has warned.
In its examination of how the government’s June Spending Review was conducted, MPs said they were concerned about the impact of protecting two major areas of spending for a fifth consecutive year in 2015/16.
Committee chair Andrew Tyrie said the decision could lead to both ‘inadequate financial discipline in some departments and ever-greater stringency in others’.
He added: ‘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.’
Ministers needed to remain alert to these dangers, today’s Spending Round 2013 report stated. ‘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.’
MPs also reiterated the committee’s concerns about the government’s £130bn Help to Buy scheme of mortgage guarantees.
Tyrie said ministers had yet to allay the committee’s concerns that the programme would increase house prices without generating extra supply. The scheme will be launched this week, earlier than expected, and is intended to help those who cannot raise deposits to buy homes.
‘It may not have the effects intended over its proposed three-year life,’ Tyrie said.
‘The decision to bring the scheme forward by three months does not alter our concerns. Mistakes could distort the housing market or carry threats to financial stability.’
He called on the government to provide clarity on the role of the Bank of England’s financial policy committee in monitoring the scheme.
Chancellor George Osborne has said the committee will provide an assessment of the scheme to the Treasury each year.
However, it is not clear if this meant Help to Buy could be cancelled by the Bank, Tyrie said.
‘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.’
