Fixing the foundations of the state

“How dare they?”

Chancellor Rachel Reeves and her Labour colleagues will hope that that question, hurled across the dispatch box at her predecessor Jeremy Hunt and the other ‘guilty men’ and women of the Conservative frontbench yesterday, will be one that rings in the ears of voters for years to come.

But beneath the political theatre of Reeves’ statement to the House of Commons – and there was plenty of that – lie some fundamental questions about the way in which our state has been operating in recent years and where it needs to change.

The Conservatives argue that Labour’s ‘shock’ to discover the true state of the public finances is as sincere as that of Captain Renaut in Casablanca as he claims to have uncovered a hidden gambling operation while simultaneously pocketing his own winnings. Labour counters that there were indeed things it couldn’t possibly have known from opposition and that the outgoing government hid the scale of the problems from the public, knowing it wouldn’t be sticking around to have to deal with them.

Who is right? Ahead of the election, the Institute for Fiscal Studies (IFS) accused both parties of a “conspiracy of silence” over the state of the public finances and its director Paul Johnson said “the books are open. Everyone knows exactly the problems a new government will inherit”. Yet even the IFS’s own Ben Zaranko said yesterday that “Rachel Reeves has grounds to be cross” as the audit she commissioned from Treasury officials revealed £22bn of in-year overspends and unfunded commitments.

The confidence of Johnson’s pre-election assertion stems from the fact that there shouldn’t be surprises of this kind for an incoming government anymore. The coalition government’s creation of the Office for Budget Responsibility in 2010 means that in theory all information about the country’s fiscal situation should be in the public domain. 

That this isn’t the case reveals an important truth: institutional change will only get you so far; it is culture and political will that ensure reforms to the system of government really stick. The new government needs to remember that as it establishes its Office of Value for Money in a bid to prevent a repeat of this week’s revelations.

The creation of this new watchdog was one of a number of actions the Chancellor set out yesterday in response to the fiscal situation inherited from her predecessor.

Many of these are welcome, long overdue and in line with what FGF has called for in recent reports such as Mission Critical 01 (in partnership with the UCL Institute for Innovation and Public Purpose) and Impactful Devolution 01 (in partnership with Metro Dynamics). It was encouraging, for instance, to hear the Chancellor talk of bringing greater predictability into the government’s approach to fiscal statements, to commit to spending reviews with planning horizons of at least three years, and of a mission-led, prevention-focused approach to reforming public services – at every level of government.

Equally there is a logic to Rachel Reeves’ decision to look again at just how much the government spends on consultants and to cut “non-essential” spending here. Though for the state to wean itself off its reliance on (expensive) external advisers, this needs to go hand in hand with rebuilding central (not to mention local) government capacity – and doing so in a way that builds the dynamic capabilities required for mission-driven government to become more than just a slogan.

But there is also a fundamental tension at the heart of the Chancellor’s statement. Labour says it hopes to “get Britain building” and Reeves recommitted yesterday to the new government’s core mission of raising economic growth. Yet she did so while cancelling a raft of infrastructure projects. 

Without capital investment in infrastructure, Labour’s growth mission – and with it, the tax receipts to fund its public services missions – will not materialise. If public investment is going to be severely limited by the new Chancellor’s mantra of “if we cannot afford it, we cannot do it”, then private investment will need to ride to the rescue. 

That is going to require innovative thinking and what James Kirkup has described as a “blunt, brave conversation with the electorate”. The next report in our Rebuilding the Nation series, due out shortly, aims to look at just that issue and whether there might be scope for a new model of public-private partnership for the 2020s and beyond.

The debate about how much the outgoing government hid from its successor will rage on as the two main political parties seek to set the narrative for the next five years (the day after the election is always the first day of the next election campaign). But beneath it are some serious questions about how to govern better. Rachel Reeves began to answer some of those yesterday, and the jury is out on others. It will not just be on fiscal matters that the new Chancellor and her cabinet colleagues find they have difficult decisions ahead.