Rachel Reeves has ordered Whitehall departments to submit their spending plans to “challenge panels” of private sector experts, including bankers, as part of her forthcoming spending review.
Formally kicking off the next phase of the spending review process, the chancellor said she was determined to wield an “iron fist against waste”, by examining departments’ expenditure line by line.
As part of the review, Reeves will insist that every government department find efficiency savings of 5% of their budget for the coming year over the following three years – and establish an independent committee, to examine its proposals and make recommendations.
“The previous government allowed millions of pounds of taxpayers’ money to go to waste on poor value for money projects. We will not tolerate it,” the chancellor said.
“By reforming our public services, we will ensure they are up to scratch for modern-day demands, saving money and delivering better services for people across the country. That’s why we will inspect every pound of government spend, so that it goes to the right places and we put an end to all waste.”
Getting more for every pound spent is a central challenge for Labour, which hopes to show voters it has improved public services before the next general election, without making further significant tax increases.
The Treasury said the expert panels would draw on former senior executives from Lloyds Banking Group, Barclays and the Co-operative Group, some of whom are already involved in government.
These could include former Co-op chief executive Richard Pennycook, who is the lead non-executive at the Department for Education, for example, and former Lloyds and Visa executive Karina McTeague, who is a non-executive director at the Department for Business and Trade.
Brian Gilvary, a non-executive director at the Ministry of Defence, is a senior independent director of Barclays and the chair of Ineos Energy.
The proposal to draft in private sector expertise may raise questions about accountability – and revive memories of the financial crisis, when the UK taxpayer bailed out a significant proportion of the banking sector, under the last Labour government.
The Treasury’s enthusiasm for private sector expertise to cut waste comes as the Tesla founder, Elon Musk, prepares to oversee cost-cutting efforts in the US, as co-chair of a new Department of Government Efficiency.
Reeves has not yet set a date for the spending review, due to be held in the first half of next year, but is expected to do so shortly.
She has already announced the overall spending “envelope,” with day-to-day spending set to grow by an average of 1.5% a year in real terms, and total departmental spending, including capital spending by 1.7%.
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The Institute for Fiscal Studies (IFS) thinktank has suggested this amounts to a tight squeeze by the end of the parliament. The outgoing director, Paul Johnson, said Reeves would need £9bn in further tax increases, to avoid a fresh austerity drive after 14 years of tight spending kicked off by former chancellor George Osborne.
Reeves used her first budget in October to make £40bn in tax increases, to spend on creaking public services, especially the NHS and schools.
The biggest revenue-raiser was a £25bn rise in employer national insurance contributions, which has sparked a backlash among business groups.
The Treasury is keen to stress that it take a “zero-based” approach to the spending review, forcing departments to explain how their plans contribute to Keir Starmer’s “plan for change” – the targets he set out in a speech last week.
As an example of the kinds of project they will be willing to scrap, Treasury officials pointed to the £6.5m Social Workers in Schools programme, which it said had been found not to be cost effective.
The launch of the review followed a speech by the Cabinet Office minister, Pat McFadden, in which he suggested the government should function “more like a startup”.
Richard Fuller, the shadow chief secretary to the Treasury, said: “Delivering value for money for the taxpayer is a noble goal, but Rachel Reeves’ record so far has been to dole out inflation-busting payrises to Labour’s union paymasters while mandating nothing in return, and making no reforms to public sector productivity or welfare spending.”