Spending Review: PAC to examine planned cuts for cost shunting

31 Jul 15

The new chair of the Public Accounts Committee has said the watchdog will scrutinise departmental plans after November’s Spending Review in an effort to tackle so-called cost shunting across the public sector.

In an interview with Public Finance, Meg Hillier said there is a risk that departments will agree to cuts in the forthcoming review without either an understanding of where the full reductions would come from or the impact they might have on other services.

Citing an example from her own constituency of Hackney South and Shoreditch, where police are regularly taking people to hospital by car because ambulances are not available, the Labour MP said every ministry must fully think through the impact of their plans.

Departments have been asked by Chancellor George Osborne to draw up plans for two levels of reductions – one delivering a 25% cut in resource spending by 2019/20 in real terms and another providing a 40% saving. The full Spending Review will be announced on November 25.

Hillier said that cost shunting, where a funding reduction in one area of the public sector leads to a consequent rise in costs faced by another public body, could increase if cuts of the planned scale are not properly planned.

“When the government talks about cutting the deficit, it is no good if you get civil servants saying they can take this hit in a department, but not actually knowing how it will be done,” she said. “And some of how it will be done is that they take the hit and the cost gets shunted to another service.”

In an effort to tackle this, she said the PAC would look to increase what she called “pre-scrutiny” of departmental spending plans for the period.

“Sometimes the pressure can be very short-term, and I think this is about planning a sustainable programme of change so that it is not just about so-called efficiency savings – which can end up just being cuts – but also effectiveness and you look at the impact on the service overall,” Hillier said.

“Where we have got to be really quite sharp as a committee is to keep pointing out to government that you’re not just responsible for your little bit of spending, but you’ve got to look at the whole. And if you’re cutting and saying it’s working well – it may be, but it may be there’s another service down the road really having to pay a lot more.”

Pre-scrutiny of plans to meet headline savings would aim to ensure departments think about these long-term impacts, she added, helping to identify both good and bad practice across Whitehall.

“I don’t think that the current pace that the government is working at – with 40% reductions coming down the line for many services like local government – that you can possibly make such swingeing cuts without damaging things. Unless you also look at the way those organisations are working and have a more intelligent dialogue,” she said.

“We always highlight the worst practice, but it is also important to say this is the good stuff where a bit more intelligent thinking went on. There needs to be a bit of granularity in that decision making, but also some really tough discussions about what the priorities are,” she added.


• Read the full interview with Hillier in the September issue of Public Finance.

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