Treasury plagued by ‘wishful thinking’ on public spending, says NAO

26 Nov 18

The Treasury’s focus on controlling public spending in the short term risks value for money over the long term, according to the UK’s spending watchdog. 

Over-optimistic Treasury plans also led to “failure to deliver, lower quality work and a need for further funding”, the National Audit Office said in a report released today.

Amyas Morse, head of the NAO, commented: “Unrealistic planning based on wishful thinking risks public money being wasted on a grand scale.

“HM Treasury and the Cabinet Office need to work together to deliver integrated and realistic short, medium and long-term planning.”

The NAO has urged the Treasury and Cabinet Office to retain and further develop single departmental plans. These are effectively a department’s business plan, and were introduced in 2015.

“SDPs are intended as comprehensive, costed business plans that departments develop to set out and agree the choices about what must be delivered within their spending limits, manage business and track their performance,” the report said.

“Not all departments have aligned their internal decision-making with the SDP they present to the Cabinet Office and HM Treasury”.

It added: “SDPs cannot support better value for money unless they drive day-to-day decisions about how to spend money, and using SDPs for decision-making will help improve their quality.”

The report acknowledged that the Treasury is effectively controlling public spending and the Cabinet Office is helping to improve business planning in government departments.

It also noted the Treasury has begun to focus more on the longer term. “It now provides guaranteed funding to support 10-year plans in some sectors such as defence and has also committed funding for investment in housing, infrastructure, and research and development,” the NAO said.

“It is also increasingly focusing on long-term risks to public finances.”

But it added: “This has yet to make a difference to the way HM Treasury monitors departments’ performance, and is not supported by a good understanding of the long-term value for money being delivered.”

The NAO concluded: “[There] are occasions when we see value for money being compromised by the needs of short-term spending control.

“Unrealistic, over-optimistic budgets are kept within the spending envelope by short-term unplanned cuts, which can damage long-term programmes and drive suppliers to distraction.”

Integrated medium- and short-term planning was needed to improve this, which in turn required a change of mindset at the centre of government and in departments, the watchdog said.

“Without these changes, government will continue to be trapped in a cycle of short-termism, over-optimism and silo decision-making, which creates real risks to value for money,” the report said.

The report also said the Treasury’s small set of fiscal and spending control measures could see it sell assets “regardless of any loss made".

A Public Accounts Committee report on the sale of student loans last week said that the government’s “the government’s objective to reduce public sector net debt” ran the risk of “being prepared to sell [assets] at any price”.

The government sold student loans with a face value of £3.5bn for £1.7bn.

A report from the Institute for Government think-tank in September accused the Treasury of ‘optimism bias’ – including understanding the likely costs and timescales of projects.

It also suggested it was staffed by young, inexperienced civil servants and had a high turnover, which meant there was a “lack of experience and key skills” in the department.

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