Calls for Government to Improve Clarity of 5-Year Budgets and Priorities

The government should improve its priority definition and establish five-year spending plans, as suggested by the IfG on Thursday.

The IfG also advised the treasury not to prematurely commit to plans and to adhere to set spending plans once established.

This advice follows Chancellor Rachel Reeves’ introduction of a multi-year spending review that will outline departmental budgets over at least three years.

However, the chancellor will only announce plans for the current financial year and 2025–2026 in her upcoming budget on October 30.

In its report released on Thursday, the IfG emphasized the importance of setting spending plans covering five years as a standard practice to reduce uncertainty, although shorter-term plans may be suitable in certain situations.

The think tank recommended that these plans be outlined at least six months in advance and reviewed every three years.

For extended projects and public sector capital schemes that exceed the spending review period, the IfG recommended establishing spending settlements beyond five years.

Once these plans are in place, the government should aim to avoid altering them while maintaining flexibility, as suggested by the IfG, and establish a new process outlined in the Charter for Budget Responsibility.

Better Defined Missions

The IfG used the handling of the levelling up programme under former Prime Minister Boris Johnson as an example of how unclear priorities hinder informed decision-making and trade-off balancing.

The poorly defined priorities going into the 2020 and 2021 spending reviews regarding “levelling up” led to budgeting for an ambiguous ambition.

When the white paper defining “levelling up” was eventually published in 2022, it had to align with budget allocations already made across the government.

This lack of clear definition limits resource redirection towards the government’s goal of addressing regional disparities and hinders ministers and civil servants in their delivery efforts.

In addition to lessons learned from Tory governments, the IfG mentioned insights from Labour and coalition governments.

The report highlighted New Labour’s use of public service agreements, which, although useful, were retrofitted and covered too many objectives for true prioritization.

On the other hand, the coalition agreement was viewed as a checklist of deliverables rather than outcomes, which became increasingly restrictive over time, according to the report.

Ministers are encouraged by the IfG to clearly define priorities before spending reviews, avoid early settlements or ring-fencing spending to allow comprehensive trade-off assessments.

It also recommends establishing robust multi-year departmental spending baselines at the start of the spending review process to understand challenges and how to address them.

The UK’s current baseline production process appears rudimentary, opaque, and unsystematic compared to practices in other countries, the report noted.

The IfG proposed an independent body to scrutinize multi-year spending baselines and plans, as well as an “Expenditure Committee” to oversee spending reviews during and after the process.

The report also emphasizes considering demand-led spending and tax expenditures in spending reviews alongside predictable spending elements.