Julian Kelly, HM Treasury

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  • 1. UK Spending Reviews Julian Kelly, Director, Public Spending UNCLASSIFIED
  • 2. Contents 1.The UK system & spending 2.Setting parameters for Spending Reviews 3.SR10 and SR13: The process 4.SR10 and SR13: The results 5.Key Reflections UNCLASSIFIED 2
  • 3. INDEPENDENT BODIES LEGISLATURE UK Institutional framework Parliament Each year votes to approve: (a) ‘Finance bill’ – tax policy for year ahead and for future; (b) central government budgets for the year Office for Budget Responsibility Office for National Statistics National Audit Office Independent Forecaster GOVERNMENT HM Treasury Sets economic and fiscal policy and public spending plans SPEND TAX Regional / local government HM Revenue & Customs Central government departments UNCLASSIFIED Responsible for some public services + some taxation 3
  • 4. Treasury within the UK government No. 10 – Prime Minister HM Treasury Cabinet Office The OBR Spending Departments and Local Government UNCLASSIFIED 4
  • 5. UK Budgeting System • UK Budgeting system is HM Treasury’s system – with the rules published in the Consolidated Budgeting Guidance . Total Managed Expenditure (TME) for 2013/14 = £718bn Key Features Departmental Expenditure Limits (DEL) Line Ministry expenditure – capital & resource – e.g. Health, education, defence. y AME 51.4% DEL 48.6% Annually Managed Expenditure (AME): Key components: •Welfare/social security •Debt Interest •Local Authority Self Financed Expenditure. UNCLASSIFIED 5
  • 6. A brief history of Spending Reviews Prior to 1992 1992-1998 1998-2013 • Public Expenditure Surveys. • Annual bilateral negotiations between Treasury & departments. • More top-down approach. • Overall “control total” set each year for next three years. • Only first year set in stone. • Separation into DEL/AME and current/capital. • Firm and fixed multi-year departmental budgets set in SRs 06 UNCLASSIFIED February 2014 6
  • 7. Contents 1.The UK system & spending 2.Setting parameters for Spending Reviews 3.SR10 and SR13: The process 4.SR10 and SR13: The results 5.Key Reflections UNCLASSIFIED 7
  • 8. The Need for Consolidation UK Spending: Expenditure v Receipts Source: OBR December 13 EFO UNCLASSIFIED 8
  • 9. Contents 1.The UK system & spending 2.Setting parameters for Spending Reviews 3.SR10 and SR13: The process 4.SR10 and SR13: The results 5.Key Reflections UNCLASSIFIED 9
  • 10. Anatomy of a spending Review 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. Key Features 1-2 months • Guidance to line ministries, including planning assumptions • Initial departmental settlements agreed and made public. • Bilateral discussions begin. • Cabinet Committee (PEX) constituted. • Chief Secretary lead • Chancellor in reserve • PM/Quad – final arbiter. End Period • Early departmental settlements (announced) • Publish spending round (Resource & Capital and headline departmental allocations. UNCLASSIFIED 10
  • 11. Contents 1.The UK system & spending 2.Setting parameters for Spending Reviews 3.SR10 and SR13: The process 4.SR10 and SR13: The results 5.Key Reflections UNCLASSIFIED 11
  • 12. Cumulative departmental reductions 2010-11 to 2015-16 International Development NHS (Health) Education Northern Ireland Scotland Wales Single Intelligence Account Defence HM Revenue and Customs DWP with non-baselined spending Small and Independent Bodies Energy and Climate Change Culture, Media and Sport Home Office Foreign and Commonwealth Office Business, Innovation and Skills Law Officers' Departments HM Treasury Justice Work and Pensions Transport CLG Local Government Cabinet Office Environment, Food and Rural Affairs CLG Communities -70.0% -50.0% -30.0% UNCLASSIFIED -10.0% 10.0% 30.0% 12
  • 13. Distributional impact of SR13 remains within the commitment at Budget 2010 • Source: HM Treasury, June 2013 UNCLASSIFIED 13
  • 14. Contents 1.The UK system & spending 2.Setting parameters for Spending Reviews 3.SR10 and SR13: The process 4.SR10 and SR13: The results 5.Key Reflections UNCLASSIFIED 14
  • 15. 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. UNCLASSIFIED 15
  • 16. 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 UNCLASSIFIED 16
  • 17. 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) UNCLASSIFIED 17