The Office for Budget Responsibility should be given a new role of scrutinising departments' multi-year spending baselines to combat "business-case gaming" and plans that are out of touch with reality, the Institute for Government has said.
Its proposal is one of a suite of recommendations in a new report on how spending reviews could be improved to make better use of resources and support the delivery of cross-cutting objectives.
The paper comes days after chancellor Rachel Reeves set out plans to embed biennial spending reviews that will have a minimum "planning horizon" of three years. The first of these is due to be delivered next spring.
Reeves' proposals will be part a revised Charter for Budget Responsibility to be published by HM Treasury that will increase the transparency of information provided to the independent OBR, as well as formalising other OBR powers.
The IfG paper welcomes Reeves' move to bring more order to the spending review process, but it argues that more radical reform is required because the approach taken in recent SRs "is not up to the job of achieving Labour’s missions".
It says there should be a five-year planning horizon for SRs that is reviewed every three years, and that in addition to setting spending plans for individual departments, cross-departmental spending plans should be agreed for each of the new government's five core missions.
The missions are: Ramping up economic development; making the UK a clean-energy "superpower; halving serious violent crime and boosting public confidence in the police; breaking down barriers to opportunity; and making the NHS "fit for the future".
Report authors Olly Bartrum, Ben Paxton and Rhys Clyne say "robust multi-year spending baselines for each department" should be produced and published at the start of the SR process so that the challenges faced can be understood and ultimately tackled.
They argue that an independent body should be tasked with scrutinising departments' multi-year spending baselines and plans to weed out so-called "business-case gaming" – the selective use of evidence to make outcomes of particular interventions appear better than they really will be.
Barton, Paxton and Clyne say handing the work to the OBR will be cheaper and less time-consuming and than establishing a new institution, and will allow the new function to draw on expertise that is already in-house at the watchdog.
Their report also repeats a previous call for the creation of a parliamentary "Expenditure Committee" to bolster the scrutiny of spending reviews both during the process and afterwards. The committee would be a counterpart to the Public Accounts Committee's role of retrospectively evaluating value-for-money and performance of departments and programmes.
"It would explore the effectiveness of the methods used to ensure that allocations reflect government priorities and incentivise value-for-money outcomes," the report authors said. "A new specialist committee could be expected to provide much more considered advice about the topics for debates over the government’s ‘estimates’, remedying the weaknesses in current arrangements."
Further recommendations include the creation of a "Priorities for Government" framework to define the new government’s missions and guide decision-making in the spending review, as well as introducing "Dutch-style" interdepartmental reviews of thematic policy areas.
The priorities framework is intended to be adopted ahead of the spending review, and would set out the government’s "ultimate, measurable goals" before decisions are made on strategic trade-offs.
The Dutch-style reviews would look at specific cross-cutting areas of policy to recommend how activity and spending could be deployed more effectively and efficiently.
Bartrum, Paxton and Clyne said the Netherlands recruited independent chairs – usually former senior civil servants – to lead each process, ensuring there was no incentive to favour the agenda of particular departments.
They said the existing process for spending reviews failed to align government spending with strategic priorities and long-term value for money.
"The process has been undermined by the variability in its frequency and timing, the poor use of evidence to guide decisions, and a failure to reflect government priorities in Whitehall department budgets," the authors said.
They cited Boris Johnson'a flagship levelling up drive as having been "inadequately defined" going into the 2020 and 2021 Spending Reviews in terms of the outcomes the government wanted to achieve.
"Those processes were left to budget for an ambiguous ambition," Bartrum, Paxton and Clyne said. "When the eventual white paper was published in 2022, it was left having to reflect the budgetary allocations already made across government.
"This limited the potential to reorient government’s resources towards a serious set of priorities aimed at tackling regional disparity, and disempowered the political and official leaders trying to flesh out and enact the prime minister’s top domestic priority."
They concluded: "On her first day as chancellor, Rachel Reeves said she was 'under no illusions about the scale of the challenges that we face'.
"A new government that is serious about tackling these challenges and achieving Labour’s missions and other objectives will need an effective spending framework.
"Our research shows that the one it has inherited is not up to the job. The next multi-year spending review provides an opportunity for the government to reset its approach and embed more effective ways of managing public spending."