Major reform of public spending rules

Major changes to tighten the control and to improve the long term planning of public spending were announced today by the Chancellor, Gordon Brown, in the Economic and Fiscal Strategy Report. The Chancellor announced that:

Departments will be given distinct current and capital budgets and will be expected to manage them separately. This means that investment plans will no longer be squeezed out by pressure of current spending;
spending plans in total will now be based on all spending across the public sector, to be known as Total Managed Expenditure (TME);
the Government will end the practice of the annual Public Expenditure round; instead
departments will be set firm multi-year spending limits for 1999-2000, 2000-01 and 2001-02 when the outcome of the Comprehensive Spending Review (CSR) is announced;
these departmental limits will be drawn together into a new total, the Departmental Expenditure Limits (DEL); and
departments will have much extended powers to carry budgets over from year to year;
resources will be allocated and monitored on the basis of agreed outcomes and departments will be set new quality standards;
firm multi-year limits are not appropriate for the large demand-led programmes, which will be brought together in Annually Managed Expenditure (AME);
AME will be subject to annual scrutiny as part of the Budget process and taken into account when the Government sets its plans for TME and DEL.

Notes for editors

1. The reforms will tighten spending control and lead to a more strategic approach to public expenditure planning and better prioritisation of resources by departments. In the past, they have suffered from being able to plan only one year ahead and have been forced to use up vital resources at the and of one year when these could have been be better spent in the next.

2. DEL will include spending financed through the Capital Receipts Initiative and Welfare to Work spending, although the latter will continue to be administered through an inter-departmental budget. DEL will include the cost of bad debt and subsidies on student loans.

3. The main elements in AME will be social security expenditure, local authority self-financed expenditure (LASFE), Scottish Expenditure financed by the Scottish variable rate of income tax and non-domestic rates, payments under the Common Agricultural Policy and net payments to EU institutions and public corporations being allowed additional flexibilities within separately managed limits.

4. Resource Accounting and Budgeting (RAB), which the Government plans to introduce in 2000, will bring in further major improvements. It will reinforce the Government's fiscal strategy by providing a more accurate distinction between capital and current spending, and will improve the planning and the management of capital assets.

5. The Government also announced today that:

from 1999-2000 some public corporations which are largely self-financing will be given greater financial flexibility to put them on a more commercial footing. Following consultation on the details, it intends to give profitable local authority airports additional flexibility;
the RAB accounting treatment of student loans will be brought forward from 1999-2000 to help improve decision-making and the management of longer term liabilities;
departments may be able to retain more receipts, such as some fines and levies, where this would lead to greater efficiency and effectiveness.

6. Accompanying the Economic and Fiscal Strategy Report there are six Treasury Press Releases 96/98 to 101/98.

Other Treasury material can also be found on this site.

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