A commission set up to drive reform across Whitehall has dismissed HM Treasury’s Spending Review process a “political scrap over who gets the biggest budget” and called for a complete overhaul of the way government manages its money.
The Commission for Smart Government, which is chaired by former Conservative minister Lord Nick Herbert, said that as ministers looked to spend £3 trillion over the next three years, departments needed their funding to be guided by a proper planning process that focused money where it is most needed.
In a new discussion paper on finance, the commission says that while the UK has previously led the way in financial planning and whole-of-government accounting, the default position is not to give enough thought to trade-offs between spending on different parts of the system – or long-term planning.
The paper, overseen by former government lead non-executive director Sir Ian Cheshire, says “serious real-world consequences” have followed from a “weak understanding of the relationship between funding and operational performance” in recent years.
It points to “unrealistically low” plans for spending on public services such as social care and prisons in the 2015 Spending Review, which led to a cycle of “service and political crises and emergency cash injections”.
The commission said the Spending Review system should be replaced with a new “best-in-class system of financial planning” that worked across government to establish how money could be spent to realise the government’s stated intentions.
Part of the process would involve the creation of a common rating system to decide whether departments and other public bodies were good at financial management, or whether they needed help to improve.
The commission said the new arrangements should be underpinned by an “excellent financial planning IT system” that was run by “expert, high-powered staff at the centre of government”. The discussion paper said there should also be “full transparency of plans and performance” available through the creation of a user-friendly web portal so taxpayers could find out how the government is spending their money via a smartphone app.
Cheshire said the panel – which includes former Department for International Development perm sec Sir Suma Chakrabarti, ex-civil service reform adviser Baroness Simone Finn, and former No.10 policy unit head Baroness Camilla Cavendish – was acutely aware of the centrality of finance to its work.
“It is not so much a case that money makes the world go round, as money turns the government’s aspirations into results, if it is managed well,” he said.
“Succeeding as a government, and persuading the public that their money isn’t being wasted, depends on excellent financial management. With the public finances under intense pressure for the foreseeable future, government needs to make the maximum impact from every penny spent.”
Departmental boards ‘need bolstered powers to scrutinise top civil servants’
A separate report from the commission also published over the weekend calls for a major overhaul of departmental boards that would give them formal authority and accountability for assuring the robustness of departmental plans and project portfolios.
The report, overseen by commission member and former Home Office perm sec Lord Michael Bichard, says the role of non-executive board members in reviewing the hiring, pay and performance of permanent secretaries and other senior executives also needs to be formalised.
It says the recruitment and performance scrutiny work of the boards should be done by a “remco” subcommittee, modelled on private-sector equivalents that scrutinise the pay and performance of senior executives.
Bichard said departmental boards did not currently have enough power and rules barring them from undertaking some areas of work – such as ways policies can effectively be translated into action – should be scrapped.
“Unlike so many attempted reforms in government, departmental boards have survived and won acceptance for their usefulness, up to a point,” he said.
“But we need to charge them up further, to strengthen ministers’ ability to direct their departments by complementing their political insight with the varied professional insight of board members, not least the non-executives with corporate experience.”