Treasury announces second Comprehensive Spending Review

The Chief Secretary to the Treasury laid the attached statement before Parliament this morning.

Written statement to Parliament on the Spending Review

In June 1997, the incoming Government launched a Comprehensive Spending Review (CSR). The CSR was the most fundamental and in-depth examination of government spending and priorities ever attempted. Moving beyond the short-termism engendered by the old annual planning cycle and building on the platform of stability provided by the new fiscal code, the CSR set long-term aims and objectives for each department and put in place a public expenditure and performance management framework within which these long-term ambitions could be achieved.

The CSR set the Government’s priorities for the long-term: sustainable growth and employment; fairness and opportunity; efficient and modern public services. To support this longer-term approach to public spending, the CSR introduced a series of key reforms to modernise the public expenditure framework including firm three-year Departmental spending plans, separate current and capital budgets, and outcome-focused Public Service Agreements to support delivery and improve departmental accountability.

The CSR allocated significant additional resources, backed by reform, to the Government’s key priority areas, with over 50% of the increase in Departmental Expenditure Limits and local authority spending being allocated to education and health. In the ten years to 2007-08, subsequent Reviews in 2000, 2002 and 2004 have built on the objectives, reforms and priorities first established in the CSR.

The framework for managing public expenditure established by the CSR has also proved robust. Three year spending plans have been set and delivered in successive Spending Reviews. The separate management of current and capital spending has allowed public sector net investment to rise from 0.8% of GDP in 1996-97 to 2.2% by 2007-08.

Over the last decade the Government has shown how one can deliver a strong economy and sound public finances at the same time as sustained and substantial growth in investment in public services. Looking forward, there are new challenges Britain will need to address in order to lock in these benefits for the decade to come, including:

a rapid increase in the old age dependency ratio as the ‘baby boom’ generation reaches retirement age;
the intensification of cross-border economic competition as the balance of international economic activity shifts toward rapidly growing emerging markets such as China and India;
an acceleration in the pace of innovation and technological diffusion and a continued increase in the knowledge-intensity of goods and services;
continued global uncertainty with ongoing threats of international terrorism and global conflict; and
increasing pressures on our natural resources and global climate from rapid economic and population growth in the developing world and sustained demand for fossil fuels in advanced economies.

These changes will have fundamental and far-reaching implications for public services and will require innovative policy responses, co-ordination of activity across Departmental boundaries and sustained investment in key areas. While reaffirming the Government’s commitment to its key objectives and building on the long-term framework the Government has put in place, it is right that the Government should periodically re-examine its public spending allocations in fundamental ways.

With the start of the next Spending Review period coming a decade after the first, the Government proposes to launch a second Comprehensive Spending examining what the investments and reforms initiated to date have delivered and what further steps must be taken to ensure that Britain is fully equipped to meet the challenges of the decade ahead. This review will:

take a zero based approach to assessing the effectiveness of Departments’ existing spending in delivering the outputs to which they are committed;
examine the key long-term trends and challenges that will shape the next decade and assess how public services will need to respond; and
look at how the public expenditure framework can best embed and extend ongoing efficiency improvements and support the long-term investments needed to meet these challenges.

The review will complement the work of the long-term reviews already underway into the future of transport, skills, pensions and local services.

A report will be made on these public spending challenges in 2006. The Government will report on the next three-year Spending Review covering 2008-09, 2009-10 and 2010-11 in 2007 and will hold Departmental allocations to the agreed figure already announced for 2007-08.

Notes for editors

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