Nick Timothy is Director of the New Schools Network and a former Chief of Staff to Theresa May.
It’s unusual to remember a single newspaper report from two and a half years ago, but I can recall distinctly the Guardian’s account of a Cabinet meeting held on 26 February 2013. In one of David Cameron’s “most fiery cabinet meetings”, the paper reported, Theresa May led a group of ministers in voicing “anger that some departments face cuts while others don’t.” A Government source said: “Theresa really got stuck in.” I remember finding this particularly odd, because Theresa hadn’t even attended Cabinet that week: she was 3,500 miles away, in Afghanistan.
The Guardian story was just one shot fired in a briefing war ahead of the spending review for the 2015/16 financial year. Another newspaper reported that Theresa had formed an unlikely alliance with Vince Cable and Philip Hammond to form the “National Union of Ministers” – a phrase allegedly coined by one of the three Secretaries of State themselves. These ministers “don’t have an ideological objection to more cuts,” the report said, “but simply don’t want to have to make them to their own budgets.” Conversations with my counterparts in those other departments later confirmed what we all originally suspected: the “National Union of Ministers” – and the positions supposedly taken by Theresa and Philip, if not Vince Cable – were the invention of somebody spinning on behalf of the Treasury.
Take a look at recent newspaper reports and you will see that similar tactics are being deployed this year. Some papers are reporting that several ministers have been told that the cuts they have proposed are “unacceptable” and that they must “go back to the drawing board”. Following speculation that the Treasury was planning to get out of the tax credits mess by cutting Universal Credit, Iain Duncan Smith reportedly threatened to resign - a move that appears to have succeeded.
But behind the briefings and public displays of brinksmanship, there must be a serious and detailed analysis that informs the decisions made in a Spending Review, mustn’t there? There must be a sophisticated study of what services the public need to have provided, how much they cost now, how demand is projected to grow, and what sector inflation is likely to be? There must be serious thinking about how we can reduce demand for public services in the first place, and how reform can make their delivery more effective, surely?
The truth is that a Spending Review does none of these things. Instead, it assumes that the baseline for any public spending is broadly right, and officials and ministers seek to negotiate from there. It protects budgets – health, schools, defence, and aid – for political reasons. And the reductions in spending – or, in other eras, the increases – are often the arbitrary results of haggling between ministers.
Typically, a Spending Review goes something like this. Informal conversations between Treasury officials and a department’s finance officials begin several months before the main event. The Treasury starts with the upper hand: its officials have been directed by their ministers, while ministers in the department are often not even told that the meetings are taking place. Worse still, the department’s finance officials dream of working (you’ve guessed it) in the Treasury, so you can never be certain whose side they are on.
Next, the Chancellor officially launches the Spending Review. The cuts proposed are huge: the departments are asked to cut up to 40 per cent of their spending over four years. Neither the Treasury nor the departments believe this is the real number. Some ministers openly dismiss the Treasury’s proposals as “initial pitching”.
Meetings between the Chief Secretary and the Secretary of State follow. The minister says reasonable cuts are deliverable, but the department needs upfront capital investment to drive later savings in resource spending. The Chief Secretary complains that this is what all departments say. No deal is done.
The Treasury encourages departments to “settle early”. Ministers who do so are granted a place on the Star Chamber, the committee that scrutinises the spending proposals for other departments. So minsters face a dilemma: do they reach an early agreement, and risk a tougher settlement, or do they negotiate hard and settle late?
Those who do settle early are used by the Treasury to put pressure on the ministers who want to tough it out. The agreements they have struck are announced to the press, and in briefings they are compared favourably to those who are yet to settle: ministers who have reached agreements are “reformers”, while those who have not are “obstructive”.
Meanwhile, the vested interests of the public sector try to turn up the heat. The trade unions claim austerity is creating a “Northern Poorhouse”. The British Medical Association protests with placards that say “Save our NHS” when really they are complaining about their own pay. Events – such as the terrorist attack in Paris last Friday – affect the Chancellor’s judgement about which services he feels he can cut.
Correspondence between the Chief Secretary and the Secretary of State continues. Wise ministers see the negotiation as an opportunity to secure reforms that might otherwise be impossible. They ask for a reallocation of spending, or policy changes, in other departments that would normally be out of the question (such as Theresa’s long struggle to improve mental health services to help vulnerable people and reduce demands on police time). They argue that they can deliver cuts to resource spending if the Treasury will allow them capital investment upfront (see Michael Gove’s plan to build new prisons). And they seek Treasury support for changes that other departments might normally block (the integration of the emergency services was something we attempted, with eventual success).
But these are isolated examples of serious reform amid the haggling. And the negotiations continue. There are more meetings between officials, between permanent secretaries, and between the Chief Secretary, Chancellor and Secretary of State. The Secretary of State is called before the Star Chamber to be interrogated not just by Treasury ministers but by other Cabinet colleagues. Sometimes, the Chancellor dispatches his special advisers to negotiate with their counterparts in the spending department, although new special advisers should beware: Treasury SpAds never have the remit to offer concessions, so neither should you.
Eventually, things start to move. The department might accept a larger cut in return for the freedom to increase the fees it charges for services. The profile of the cuts might change, allowing time for a reform to take effect before spending falls too far. The Treasury might support a contentious new policy in return for a larger cut. A deal is done and everybody breathes a sigh of relief. Some departments fare better than others, partly because of the negotiating skill of the Secretary of State, partly because of the quality of the proposition they made, and partly because of the political context in which negotiations are taking place.
But is this the right way to conduct a Spending Review? For a government that has introduced so many public service reforms, it is odd that Spending Reviews have not changed more fundamentally. They ought to be an important opportunity for the Government to quicken the pace and improve the quality of reform, to join up the way the State works, to reduce demand for public spending by fixing social problems, and to work out the best way of delivering vital services. After all, we are talking about spending around £750 billion a year. We should do more to make sure we spend it wisely.