julian kelly, hm treasury

UK Spending Reviews

Julian Kelly, Director, Public Spending

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Contents

1.The UK system & spending2.Setting parameters for Spending Reviews3.SR10 and SR13: The process4.SR10 and SR13: The results5.Key Reflections

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UK Institutional framework

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ParliamentEach year votes to approve: (a) ‘Finance bill’ – tax policy for year ahead and for future; (b) central government budgets for the year

HM TreasurySets economic and fiscal policy and public spending plans

HM Revenue & Customs Central government departments

Regional / local government Responsible for some public services +

some taxation

TAX SPEND

Office for Budget Responsibility

Independent Forecaster

Office for National Statistics

National Audit Office

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Treasury within the UK government

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HM Treasury Cabinet Office

No. 10 – Prime Minister

Spending Departments and Local Government

The OBR

• UK Budgeting system is HM Treasury’s system – with the rules published in the Consolidated Budgeting Guidance .

UK Budgeting System

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Key Features

Departmental Expenditure Limits (DEL) Line Ministry expenditure – capital & resource – e.g. Health, education, defence. y

Annually Managed Expenditure (AME): Key components:• Welfare/social security• Debt Interest• Local Authority Self Financed Expenditure.

AME51.4%

DEL48.6%

Total Managed Expenditure (TME) for 2013/14 = £718bn

A brief history of Spending Reviews

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Prior to 1992 •Public Expenditure Surveys.

•Annual bilateral negotiations between Treasury & departments.

1992-1998 •More top-down approach.•Overall “control total” set each year for next three years.•Only first year set in stone.

1998-2013 •Separation into DEL/AME and current/capital.•Firm and fixed multi-year departmental budgets set in SRs

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Contents


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The Need for Consolidation

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Source: OBR December 13 EFO

UK Spending: Expenditure v Receipts

Contents


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Anatomy of a spending Review

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Budget

•Set envelope for period of SR•Announce key policies: e.g. pay•Zero based capital review•Set priorities – i.e. spending on health, schools and

overseas aid.

1-2 months

•Guidance to line ministries, including planning assumptions

•Initial departmental settlements agreed and made public.

•Bilateral discussions begin.•Cabinet Committee (PEX) constituted.

End Period •Early departmental settlements (announced)•Publish spending round (Resource & Capital and

headline departmental allocations.

Key Features

• Chief Secretary lead

• Chancellor in

reserve

• PM/Quad – final

arbiter.

Contents


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Cumulative departmental reductions 2010-11 to 2015-16

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CLG Communities

Environment, Food and Rural Affairs

Cabinet Office

CLG Local Government

Transport

Work and Pensions

Justice

HM Treasury

Law Officers' Departments

Business, Innovation and Skills

Foreign and Commonwealth Office

Home Office

Culture, Media and Sport

Energy and Climate Change

Small and Independent Bodies

DWP with non-baselined spending

HM Revenue and Customs

Defence

Single Intelligence Account

Wales

Scotland

Northern Ireland

Education

NHS (Health)

International Development

-70.0% -50.0% -30.0% -10.0% 10.0% 30.0%

Distributional impact of SR13 remains within the commitment at Budget 2010

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• Source: HM Treasury, June 2013

Contents


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Reflections

• In the UK, the Finance Ministry controls the timetable and parameter setting – major advantage.

• Owning and setting the key parameters at the start manages expectations and provides certainty for departments and markets;

• The negotiation should be around the margin. HMT sets headline budgets at spending reviews – line ministries have to plan the detail after the review.

• Parliamentary scrutiny follows allocations.

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CSR07 SR10

Leitch Review of skills for the future Hutton review of public sector pensions

Eddington Study on transport Browne review of Higher Education

Sainsbury Review on science and innovation

Strategic Defence Security Review

Barker review of land use planning

Stern review on economics of climate change

Review of children and young people

Policy Review of Counter Terrorism and Security

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The SR10 process took some new approaches

• ‘Spending Challenge’: public sector workers and public submitted ~ 40,000 ideas, leading to 25 policy suggestions for SR

• Independent Challenge Group: external experts and Civil Service leaders worked with HMT and departments on innovative ideas for public spending reforms, reporting to CX and CST

• Permanent Secretaries Spending Review Group: to address cross cutting issues (e.g. localism, efficiency)

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