Unpacking Spending Reviews

Much like the selection of a new pope, Spending Reviews are a strangely private, or even mysterious affair.

But they are one of, if not the most, important tools UK governments have to set out their policy priorities and deliver tangible results. So it is useful to try to unpack how these political conclaves actually work.

Spending Reviews are rather like your family arguing at the dinner table one Christmas over the greatest Christmas movie. Except now imagine your extended family joins in and wants to talk about the best film of all time. And then imagine your other half brings their family over too and they want to compare films to other creative art forms.

So at the start you may have all agreed Love Actually is the best Christmas film – it was heated, but you got there in the end. But then the rest of your family joins in and you have to have the argument all over again, but about the best film overall.

And then this other family comes along and you’re having to try and prove that Love Actually is better than not only other films, but books, podcasts and tv series.

It sounds ridiculous, but, honestly, it’s really not a bad metaphor for what a Spending Review, or SR for short, can feel like when you’re on the inside.

You find groups of officials in individual department arguing about what the priority should be for the next three years, but that is simultaneously happening at every level of government. So while it might be possible to agree what the best policy on teachers is, you then need to decide whether that policy is also a priority when you compare it against other education policies, say on curriculum, or on universities, or youth services. And then it needs to cut the mustard in the context of overall government spending, against health, or defence.

That’s a lot of arguments.

Each department normally sets up a central team to co-ordinate things at their end – so that, for example, the Department for Education will ultimately send in one (VERY long) letter with its priorities. And so does the Department of Health, the MoD, and all the rest. And the recipients of these letters – Her Majesty’s Treasury and its Ministers – are then charged with prioritising the many and incredibly varied asks all within a set budget.

It may sound horrific, but it’s what the best Treasury officials are born to do.

At their end, the formal process for renewing a Spending Review normally kicks off about six to nine months before a settlement. In between times, of course, there are regular engagements between HM Treasury and each department. The aim of these meetings is to ensure that spending commitments made in the previous SR are kept on track. Depending on how things go, these can be productive meetings, or meetings where Treasury implicitly (or explicitly) try to work out “What is it all you people actually do all the time” whilst departments try to show why they need even more money next time round.

The aim of these conversations is also to ensure that the next round of bidding for money doesn’t come as a complete surprise to either side. Despite this, the start of a Spending Review is often a time of great tension and sudden acceleration of work.

What needs to happen in a relatively short space of time is for each Secretary of State to decide where they want their red lines to be – the hills upon which they want to die, if you will. What are the big priorities at the moment? Where do I want to make a difference? What’s the politics of all of this? What does No 10 think? And that then needs to translate in relatively minute detail to a set of coherent bids from the department to the Treasury.

Now, when you walk into a car dealership the guy doesn’t offer you his best price straight away, and in that vein, the Treasury traditionally marks the start of an SR by saying that there’s much less money than everyone thought and everyone will have to make terrible, terrible cuts. Sometimes, departments call that bluff, and offer up cuts that are totally unpalatable. “Of course we can make these savings”, the DfE might say. “Our proposal is to double class sizes and make half the teachers in England redundant. Oh, that doesn’t work? Well, we need more money, then.”

Ideally, once the silly skirmishing on both sides is done and dusted, the proper negotiation and policy discussions can begin. If a department has got good, strong, leadership at political and official level, the process can be painful but quick. You set priorities, eliminate a load of bids from within the department that won’t work, and focus on a few areas which have a strong evidence base and political backing, preferably both. If you don’t have a process and a plan, it can be really unpleasant.

Once the official submissions have gone in, then the process moves to the political level. The SR is managed by the Chief Secretary to the Treasury who has a series of bilaterals with other Cabinet Ministers in order to settle departmental bids. A central team in the Treasury keeps track of the overall pot – what has been committed to, and what’s left. If the politicians can’t agree, then the process escalates to the Chancellor and, for the highest priority issues, the Prime Minister. Eventually – somehow – the whole thing is reconciled, a long document is produced, and HM Treasury writes a series of long letters back to departments telling them how lucky they were, how generous the Chief Secretary has been, and how they will need to deliver the following sixty eight things in exchange for this largesse.

Then, after a short break for sleep, the monitoring meetings recommence, and HM Treasury starts to ask “so what do you all do all day” again…

For all the pain and process, Spending Reviews really are one of the most important things that a government does.

Due to scale if nothing else, government is an inherently change-averse structure. Departments like to have a direction, and tends to like to stick with that direction. Moments when Ministers can genuinely change that direction, and put departments on a new path, are few and far between. Spending Reviews are one of those very few times. Mess it up, and – for all your excellent policy plans or strategic innovations – you will struggle to genuinely make a major difference during your time in office.

Unlike Bishops of Rome, Treasury ministers are not, in fact, infallible – but at this stage in a Spending Review they will seem rather like St Peter at the pearly gates, elevating some political careers to immortality and damning others to failure.

By Reza Schwitzer and Jonathan Simons