‘Reeves needs a BoE independence-style moment like Brown. Here’s one big idea’

If Labour wins the next election, the challenge it will face is clear. It must deliver a “decade of national renewal”, as Starmer put it in his conference speech last month, with little additional spending.

This bind – the need for change but no extra cash – has led to the search for a new ‘Bank of England moment’ in policy circles. A move which, like the granting of operational independence to the Bank of England in 1997, changes the country without requiring more money.

The UK is hamstrung by short-termism

What might that look like today? The UK is hamstrung by short-termism. You see this everywhere you look. We’ve failed to build enough homes. Infrastructure projects are lucky to be years late; too often, they’re scrapped altogether. This is what Starmer calls ‘sticking-plaster politics’: always reaching for the ‘quick win’, a terrifyingly popular phrase in Whitehall, rather than going to the root of the issue.

This applies to our public services too. Over the last decade, spending on prevention services – attempts to intervene before problems become more serious – has collapsed. The public health grant, which pays for preventative health measures delivered by councils, has been cut by 26% per person since 2015/16. Spending on ‘early intervention’ children’s services has been cut by a staggering 50% since 2010/11.

This has had many terrible consequences for the country. We went into the pandemic with poorer health than we should have done, costing us many lives. The need for a shift to prevention is nothing new; it has featured in countless government white papers over the years. Yet the promise has never been delivered.

Prevention spending should be a separate category of spending

That’s why Demos is calling for major reforms to the government’s spending framework, setting out how we classify different types of government spending.

Today, that framework puts spending into two camps: capital spending, on physical things like roads and buildings, and ‘revenue’ spending, on so-called ‘day-to-day’ spending, such as public sector wages.

That framework was introduced by the Labour government in the late 1990s in response to concerns about insufficient capital investment. For a period, this was successful; under the last Labour government, spending on capital budgets increased significantly.

Inspired by those changes, we need to introduce a third category of spending – prevention – to sit alongside capital and revenue. This recognises that some forms of spending are inherently more longer term than revenue, but aren’t the same as buildings or roads.

One reason for this is that we don’t properly measure prevention spending; we all know that “what matters is measured”. Another is that, in the face of urgent demands, prevention often loses out.

Given this, there is an argument for treating spending on prevention differently to day-to-day spending. Defining preventative spending in this manner would also signal its importance, encouraging the Whitehall machine to put more energy into developing preventative proposals.

The current system too often throws good money after bad

When the capital spending category was created, Labour’s “golden rule” on spending deemed that governments could borrow for capital investment, not day-to-day spending. Future fiscal rules should extend the same treatment to prevention spending, recognising it as an investment in our collective futures.

Introducing a new category of spending focused on prevention would be no silver bullet on its own. It would require proper work to effectively define prevention and would only be ever as effective as the activities it is spent on. The difficulty of defining it should not, however, be a blocker to shifting away from a system that too often throws good money after bad.

Prevention funding would shift the dial in our approach to policymaking and public services away from the sticking-plaster politics that Starmer rightly bemoans. From the vantage point of the middle of the 21st century, we could even look back on the introduction of PDEL in the same way that we think of the totemic decision to grant Bank of England independence in 1997.