The Treasury’s planned Spending Review is unlikely to go ahead this summer as planned because of the Conservative Party’s leadership race, chief secretary to the Treasury Liz Truss has said.
Chancellor Philip Hammond said in his Spring Statement that the upcoming Spending Review will cover three years of public spending and begin before the summer recess, but has since warned it could be delayed if the UK fails to reach a withdrawal agreement with the European Union.
And Truss confirmed yesterday that the summer start date is “unlikely to happen”.
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Appearing before parliament’s Economic Affairs Committee, Truss did give some insight on the Treasury’s thinking so far on the exercise, which will set departmental budgets for the next three years.
She said that in allocating funding, the Treasury would prioritise projects that promise increase economic growth and reforms intended to save the government money.
One area it would focus on would be housing, she said, citing the tens of billions government spends on housing benefit, which she said must be viewed alongside the fact that house prices are rising. The Department for Work and Pensions and the Ministry for Housing, Communities and Local Government will be asked to look at how to get “better value for money” from the money they spend in those areas, she said,
Truss insisted the Spending Review would not be a zero-sum game, as there would be reforms that could save the government money.
The chief secretary also indicated the Treasury would be looking closely at where to make savings on the public estate, hinting that land could be sold off.
She said that “for the first time”, the Spending Review would look explicitly at human capital – which she described as an answer to the question: “How much is that contributing to people living a better life?”
Money would be allocated to services – which could include the Transforming Families programme or early-years education – that are likely to increase this human capital, she said.
But she went on: “That’s a slightly different issue to the buildings that these services are housed in…. What we’re looking at is: how do we get better value from the land and buildings that we have? How do we make sure there’s better use of those public assets?”
She said when schools were located across multiple sites, for example, the Department for Education could look at how to manage that “more efficiently”.
She said the government should look to manage its estate in a way that “frees up land so that we don’t have a lot of public-sector land that could be used for housing sitting on the government balance sheet”.
During the hearing, Truss also urged the candidates to replace outgoing prime minster Theresa May in the upcoming Conservative Party leadership race not to offer big tax cuts or public spending increases that might cause the government to miss its national debt targets.
“I don’t think we can go into the final Brexit process having a splurge of deficit spending. I think it would be the opposite of what will mean a successful Britain operating as an independent nation,” she said.
She added: "There are trade-offs. We can’t spend more on every area of government, cut taxes and hit the debt target.”
She said that if the Spending Review is delayed, the next prime minister would need to make sure departments’ revenue budgets were put in place for the next financial year, as “we don’t have revenue budgets beyond April 2020”.
Departmental capital budgets are already set for 2020-21, meaning that the Treasury “won’t need to set the capital budgets immediately”, she added.
“However, I would suggest that capital is a long-term proposition and it’s important that any new prime minister gets on with that process.”
Committee members were especially concerned when and if funding would be guaranteed for major government infrastructure projects such as the high-speed rail link HS2.
“Clearly there are major decisions to be made this year, so the final go or no-go decision on HS2 will be due by the end of this calendar year,” Truss said.
Truss told the committee that preparatory work had begun on the Spending Review. She said she was soon to convene roundtable of economists to examine the economic appraisal techniques the Treasury plans to use for the zero-based capital review it will carry out alongside the spending exercise. The exchequer wanted to ensure departments were assessing of the funding they needed based on comparable data, and for these assessments to be transparent, Truss said.