Labour’s zero-based spending review: five hundred year wisdom

An old tale has resurfaced again recently, most noticeably in David Cameron’s conference speech; that an Oxford college, when scouring around for oak beams to replace the ones rotting in its roof, discovered that forward-thinking college authorities 500 years previously had planted some trees for just this occasion, now ready to be felled and hoisted into place. It’s a good story (despite its dubious accuracy), although if it directly illustrates anything at all it’s surely the folly of a doggedly short-sighted approach to the climate and environment. At this rate we’ll be losing more than a few oak trees.

A government with both eyes firmly fixed half a millennia ahead would clearly struggle – a 500 year vision for the NHS is unlikely to win many votes. But just as clearly a government with both eyes staring straight down, blinkered completely to the next decade let alone the next century will make bad decisions now.

Sadly there is a puzzling disconnect between the respect with which long-term thinking is held in society and our inability to embed this in institutions particularly the state. With a few reluctant exceptions (perhaps pensions, capital investment) public policy is at its most comfortable this year or next.

The Early Action Task Force has argued that this is one of the most significant barriers to the adoption of preventative social policy that ensures everyone is ready and able to thrive. From healthcare to prison to social care and even within education we tend to wait until problems have escalated causing considerable distress and then intervene at considerable cost. A government that consistently and rigorously looked at least ten years ahead would surely operate differently, investing more now and saving more later.

How to embed this in public institutions? The next Parliament presents a good opportunity through a process such as the zero-based spending review which Labour have committed to and Chris Leslie is presumably getting to grips with.

First a zero-based spending review process should begin by identifying and classifying early action spend (the National Audit Office have made a start; they estimated 6% of spending across 4 major government departments). This would shine new light on spending decisions helping Ministers, Parliament and the public prioritise areas for cuts or investment based not just on this year’s spending but their impact in future years.

Secondly the review process would require all departments to examine rigorously the impact of every item of spending now and in ten year’s time. Particular attention should be paid to spending which is traditionally rolled forward year after year, some of which is astoundingly ineffective (prisons that increase reoffending rates, a care system that scars children further, a healthcare system that’s fantastic at patching people up but does virtually nothing to stop people getting ill in the first place). Some acute services are of course vital even if they contribute nothing or raise costs in ten years, but that debate should be aired in public.

Thirdly, start to target an incremental shift in investment over the Spending Review period from acute interventions to early action within departmental budgets – what we have called Early Action Transition Plans.

Fourthly, begin treating early action as an investment, where it forestalls future liabilities and creates growth. We recommend protecting it – in the same way as capital investment – against raids to fund short-term pressures in-year. For example, in the area of public health, ring-fenced budgets were established in April.  Steps could be taken immediately for those areas where early action can already be clearly defined, as in public health or on early years education.

Finally, to help achieve that shift in spending, incentives should be put in place to encourage departments and others to invest in early action, just as the Government is seeking to encourage social investors.  It hopes eventually to raise some £2bn from social investment but already has at its disposal some £377bn of its own social spending, a significant proportion of which could be better invested in future growth and reducing future liabilities.

Spending more now on early action is, we think, fiscally responsible as well as socially transformational but of course it will leave any government open to the charge that it is spending with insufficient evidence for future savings. Therefore just as Ed Balls has suggested the OBR be involved in assessing the opposition’s spending plans so they should be involved in this process.

The OBR is currently, and perhaps rightly, very suspicious of projected savings from current early action spending and therefore very reluctant to build them into its forecasts. The headline forecast must be rigorous but the OBR could assess and publish the likelihood of future savings even if these fall below the high threshold required for their inclusion in the final forecast. For example, we should know if spending in a particular area has a 70% chance of yielding considerable savings, even if the OBR will not build these savings into its forecast. And similarly we should know if cuts in another area have a 40% chance of increasing costs in future years. These could be included in ‘shadow’ or ‘indicative’ forecasts which are regularly reviewed alongside the headline one; as evidence becomes more robust they might transition across.

These ideas and others could be introduced individually or an ambitious new government really determined to make a difference might wrap them all up in a Future Generations Bill, signalling a serious commitment to early action which could also include, as in Wales, duties on public bodies to look ahead when making spending decisions, and the creation of a strong independent commissioner to hold government to account.

The college oak tree story raises the bar even higher than we have dared to imagine in the Early Action Task Force. Five hundred year planning may be a bridge too far at this stage but even the relatively modest measures that we have been proposing would result in a different kind of society – one that valued sustainable solutions above short term crisis management, and would, in aggregate, unleash a triple dividend – thriving lives, costing less, contributing more.