Oral evidence: Work of HM Treasury, HC 687

Oral evidence, 12 February 2025.

Witnesses

James Bowler CB, Beth Russell, Sam Beckett and Conrad Smewing.

Chair

Welcome to the Treasury Committee on Wednesday 12 February 2025. We are delighted to be at the Darlington Economic Campus, which is a Treasury and other Department hub in Darlington and part of this Government and the previous Government’s desire to take jobs in the civil service out of London. We are really pleased to be joined by some key witnesses from the Treasury today to look at its work as part of our scrutiny of it. I am pleased to welcome James Bowler, the permanent secretary at the Treasury; Beth Russell, a second permanent secretary at the Treasury, who is permanently based here in Darlington; and Sam Beckett, the chief economic adviser and head of the Government Economic Service and a second permanent secretary at the Treasury. They are joined by Conrad Smewing, who deals with public spending in the Treasury. You have welcomed us, so on behalf of the Committee I thank you for the warm Darlington welcome today. Before we get into our main inquiry, I need to raise a serious matter with you, permanent secretary. Bloomberg is currently running a story about what the Office for Budget Responsibility has forecast. We expect that forecast to be published on 26 March, and the Chancellor has already said that she will come to the House to talk about that forecast, but the OBR says it has had a leak from that forecast. Our understanding is that there has never yet been a leak of information from the OBR going to the Treasury; it has always been revealed only on the day that it was expected to be published. Do you have any further information about how that information may have gotten into the public domain, and what are you going to do about it?

James Bowler

It is vital that the Government and the OBR have the private space to develop forecasts, economic and fiscal, in time before there is an OBR forecast. By its nature, that is a private undertaking, and it is important that that is kept in a private situation. I am aware of the Bloomberg article. We will be investigating that and following it up as a potential leak, and we will be inquiring about that. It is important to do that, because, as I said, it is important to put a ring around these forecasts and ensure that they are not in the public domain. The reason for that is that the OBR, Ministers and officials need to interact with each other as new information becomes available. They need to do that in privacy, so that would be a serious and very unwelcome undertaking. The right thing to happen is for the OBR forecasts to be published for the first time on 26 March, in this case, and for the Government to respond to Parliament as the Chancellor intends to do. I take any suggestion of a leak very seriously indeed, and we will be investigating it.

Chair

Thank you. One of the things here is that the leak has come out now—it is not the final forecast, because the timings mean that the latest forecast would come out just ahead of the actual publication. If there has been a leak and we believe what Bloomberg has said, it would be a draft forecast at this point.

James Bowler

Yes, that’s right. The OBR does three rounds of both economic and fiscal forecasts. It sends an agreed timetable and a forecast to Treasury Ministers of, first, the economic situation, and about a week later the fiscal situation based on that. That builds, and they both reflect judgments that it is making on the data that it has in mind in any interaction it has with the Treasury. That process has been going on since the inception of the OBR. It is very important that that is a private process. You really do not want to give a running commentary on that or publish things as it goes along, because that would be extremely market-sensitive and therefore deeply unwelcome.

Chair

If there has been this leak, as Bloomberg said, will you also be working with the OBR? Do you expect it to do a leak inquiry as well?

James Bowler

I think we will cover that. I am not suggesting that the OBR has leaked this information.

Chair

We do not know where it has come from, do we?

James Bowler

I don’t know. Is it the case that, having seen this forecast, someone has talked to that thing? We keep these things under really quite tight secrecy.

Chair

How many people will have seen this forecast?

James Bowler

People in the economic, fiscal and budget teams. I will not give you an exact number because I will get it wrong.

Chair

Tens of people. Perhaps under 50—something like that? Sam Beckett indicated assent.

Chair

And anyone in the OBR might have seen it, because a lot of them are working on it.

James Bowler

Yes.

Chair

So there is a pool of people who might have to give evidence.

James Bowler

We will undertake an inquiry and I am happy to communicate the outcome of that.

Chair

Please keep us updated, because it is a serious matter that, as you say, has market-sensitive impacts. Thank you for that. We now want to move on to our main inquiry, which is broadly on the work of the Treasury. As we are delighted to be here in Darlington, you might expect the Member for Darlington, Lola McEvoy, to be keen to kick off with questions about what is going on here. Over to you, Ms McEvoy.

Lola McEvoy

Thank you. Here we are today at the Darlington Economic Campus, a flagship of devolution from Whitehall to the regions outside London. The Chancellor says that it is her second office and the second base of the Treasury. Could you give us some indications of what success looks like for this for this project?

James Bowler

Can I say something up top? Then, it is important that the person who has been the author of much of that success, Beth, comes in. First, thank you very much for coming here. It is a historic moment for this campus that you are questioning us here. We are very proud of what we have built in the Darlington Economic Campus. It has gone from nothing in 2021 to now 333 people—just under 20% of the Treasury is located here. We have combined senior leadership with strong employment from the region. That is delivering a much wider and better view of policymaking in particular to the Treasury. We have people from different regional bases with different backgrounds, and people who would not have been civil servants otherwise now advising us. That is probably the key measure of success. Other things to point out include that we work hand in glove with eight other Departments, which means that it is an economic campus, not just the Treasury. That is a really good focus for how the whole of Whitehall—I shouldn’t say Whitehall; the whole of Government—should work in future, where the famous silos are broken down. Beth, do you want to pick up on the successes?

Beth Russell

I will start on the numbers. As James said, the Treasury now has 333 people working here. Our ambition was always to get to 335, so we will be pretty much at that point by March. That is one part of the campus—the fact that we are a campus across nine Government Departments is really important. We now have 1,000 people across the Departments that are newly located in Darlington. That is on top of the 700 Department for Education officials who already worked in the town. The ambition is to have more than 2,000 civil servants based here in Darlington across the nine Departments over the next period of time, and we are on the way towards that. As James said, it is not just about providing opportunities for people who previously could not think of working in the civil services to have a job here. It is also about the impact that that has on the Treasury and other Departments, in terms of insight and experience into policymaking. A really important part of us being here is that we have a very different set of relationships with local government and businesses in the region. Again, we are getting different insights and having different conversations and different types of engagement with people in the community and the wider region. That is beneficial to us and is part of bringing Government and the civil service closer to people who are not so au fait with what we do in Government. That is a really important part of this too.

Lola McEvoy

Thank you for that answer. It is clearly a source of great pride for you and the Government more widely. I just wanted to probe a bit into the recruitment of the people who are working here. Can you tell us a bit about the breakdown of where they are from?

Beth Russell

Of the 300-odd Treasury civil servants, about 40 of us are people like me who have relocated from London, where we were previously civil servants, but 85% of the people working here in the Treasury—I think it is pretty similar across other Departments—are people we recruited directly in the region. The vast majority of them were not civil servants before. They have all sorts of previous career experience. There are those coming in mid-career from other bits of the public sector, the private sector and the charity sector. We have also brought in quite a lot of people through the apprenticeship route. Across the campus, we have 80 people doing apprenticeships at the moment, and in the Treasury we have had about 50 so far going through apprenticeship programmes. We have also recruited into the Treasury through our graduate recruitment programme. This year, we took twice as many graduate recruits in Darlington as we did in London, so we have a pipeline of graduate recruitment.

Lola McEvoy

That’s great. You said that about 85% were recruited from the region. Is that the north-east? Can you give a bit more clarity on that?

Beth Russell

I would say that our travel to work area is quite big—up to Newcastle and down to York. Some people come across from Leeds, and obviously lots of people live in Darlington. It is a relatively wide travel to work area, and we say that people have to spend at least 60% of the time in the office.

Lola McEvoy

So do you think it would be fair to say that this is really the northern hub of the civil service in the country?

James Bowler

Economically, yes. There is a massive public sector presence in Leeds with the Department of Health and Social Care, and in Sheffield with the Department for Education, but for economics it is.

Beth Russell

The thing that has been different about the wider Places for Growth programme over the last few years—moving civil servants out of London—is that traditionally there were lots of civil service jobs outside London, but they were mostly operational roles, whereas for the first time we are moving big swathes of policy roles and more senior civil service policy roles. That is particularly encapsulated here.

Lola McEvoy

I do not want to jump the gun, but is the ambition to have representation from the senior levels of every Department in Darlington when you open the Brunswick site?

Beth Russell

It is called an economic campus for a reason: there is a real advantage in clustering Departments that work on similar things. One of the things that we can take real advantage of is the fact that every Department here is an economic Department in the broadest sense. There are lots of synergies between the different Departments’ work, and we are really trying to break down the siloes between Departments by being co-located here. That is quite a strength. Whether over time you have other, non-economic Departments—one might say that every Department is an economic Department—

Lola McEvoy

The spending review certainly suggests that.

Beth Russell

We definitely say that every Department has an impact on growth. At the moment, we are nine Departments. Obviously, when we build the new building we will have more space here, and I am always keen for more people to join us. Darlington is obviously one of the 12 Places for Growth locations around the country where we are focusing on moving civil servants outside London. There is also a drive to put more policy civil servants in Manchester, Leeds and Sheffield, alongside Darlington.

Lola McEvoy

You mentioned the crucial word growth there. Can you give us a little bit of an outline of the impact the Darlington Economic Campus has on growth in our town?

Beth Russell

There are a couple of things on that. One is that we are providing jobs that would not otherwise exist—public sector jobs and opportunities. If you asked Darlington Borough Council, they would say that they have definitely seen an uptick in private sector interest in locating in the town. Obviously, by being here we also create economic activity—you all had a nice lunch from the deli around the corner—so, that is also making a difference. I do not think that we should overstate the immediate direct growth benefit, but there is definitely some. Beyond that, it is about us better informing policy on growth, as we are here with different relationships and are recruiting different people with different insights.

James Bowler

The one thing I would add, which I think is a real positive, is the community and business outreach that comes from here. There is really quite impressive engagement from all the Departments—Treasury in the lead—on business and community outreach. To be blunt, I am not going to see Westminster City Council in London all the time, but I think here there is much better business outreach and business links. With that, you are getting a better understanding of growth challenges and opportunities, what business thinks, and what the community thinks, and that is really feeding into that. That goes with a really good schools and college outreach—we have doubled our graduate intake locally, for example.

Lola McEvoy

That is brilliant. Obviously, this is the Treasury Committee, but with the wider Darlington Economic Campus, outsourcing the facilities management staff is a cause for concern. When you outsource facilities management staff, they do not have the same terms and conditions as the civil servant staff who are here. I wonder how that decision aligns with the drivers for growth in the area and providing good quality jobs that people might not otherwise have got.

Beth Russell

The building and its facilities are managed by the Government Property Agency on behalf of all the Departments. They then contract the contractors who provide the services here. We hold the GPA to account for ensuring that those services are delivered and delivered in a way that supports the people that work for them. One of the things that is noticeable about the economic campus, and a brilliant part of it, is how much of a team we are across our facilities, IT, and catering staff—who are very much part of the DEC team. It is something we will keep an eye on to make sure that there are no issues.

Lola McEvoy

Is there a plan to align those terms and conditions for the facilities staff at the DEC with the civil service terms and conditions?

Beth Russell

That is something we would have to pick up with the Government Property Agency—we are happy to do that.

Lola McEvoy

Great. When those decisions are being made on the new expansion and the new property, has any thought gone into ensuring that the jobs in every tier of the new opportunities are good, skilled, well-paid jobs?

Beth Russell

I know that the work on building the new building—which is obviously the focus at this point—is something that the GPA are thinking quite a lot about. In fact, when they refurbished this building they used a lot of local labour, local small and medium enterprises, and lots of local apprentices. We would expect the GPA to be doing the same with the new building.

Lola McEvoy

I am very glad to hear that, given the power of public procurement as a lever for growth.

John Glen

I acknowledge the massive progress over the last four years, which Ms Russell has done a massive amount of work to achieve. Can I ask you about the connectivity to Ministers and policymaking? One of the concerns is about how many people here can serve as private secretary or assistant private secretary to Ministers—that may be a metric for the positive direction of a career. Could you say something about that and how you ensure you give career paths that can lead to where you are?

Beth Russell

Absolutely, the ambition is that you should be able to have as good a career here as anybody in London, up to the most senior levels. We think quite a lot about that. The driver for the Treasury is that any job can be done from here, including private office jobs to an increasing extent. We have had a few examples of people doing jobs in Ministers’ private offices, such as diary secretary and assistant private secretary. It is quite hard doing that from here, when Ministers are predominantly based in London and Parliament is in London, and Parliament is very in-person. We will keep trying to make that work in different ways, but until a time when Ministers are predominantly based in another location, it will be much harder to replicate that here. Those jobs are very small in number, though, and we try to offer different opportunities. For example, we have a lot of jobs here where people are private secretaries to senior officials like me, which is another way of getting that kind of experience. The number of jobs that are more difficult to do from here is very small, and apart from those, any job in the Treasury can be done from here. In fact, we have targets for every team to have roughly 17% to 20% of their team and their group based here.

John Glen

Does your structure replicate what we see in London?

Beth Russell

Yes.

James Bowler

You will be only too aware, but it is probably worth saying, that the thing that absolutely allows us to ensure that the vast majority of jobs can be done from here is that our expectation, which Ministers share, is that Ministers are totally happy to be agnostic about where a policy official, at any grade, is located when that official briefs them and when they engage. At every meeting that a Minister or senior official has it, is absolutely par for the course that it will have a screen, laptops and people coming down the line. It is not the case that if you want to brief the Minister, you have to get on the train to do that. Covid pushed that breakthrough forward to a certain extent, but it has been followed through. There has been a massive change from how Ministers used to work, even quite recently. That is the key for success in making sure that every job can be done from here.

Rachel Blake

You said that you do not want to overstate the regional and town benefits to having the campus here, but some evaluation shows that 67% of people have noticed a benefit, and it talks about some of the benefits you mentioned, including to local purchasing and local industries. Has any thought been put to doing an assessment of the agglomeration benefits of being here, perhaps alongside other civil service functions, and the impact that that could have on the regional economy?

Beth Russell

Yes. At the moment, a lot of this is anecdotal, because we are only three years in and this is a long-term project. We have done some evaluation, but it has been quite qualitative so far. The borough council has started some evaluation, but I am not sure when that will be published. I wasn’t saying that there is no impact; I think there is a big impact. There is a big impact on how the town feels as well. We are part of a story about how the town is changing for the better, and we are contributing to it. I am really proud of that. It is a bit difficult to quantify at this stage, but we will definitely keep looking at how we can do that.

Rachel Blake

There has been a discussion about the policy benefits of being here. You have talked about going to Westminster City Council a bit less—

Chair

The permanent secretary might have forgotten you were in the room.

James Bowler

I am sorry about that—I feel a letter coming on.

Rachel Blake

I might have an opinion about the scale of the visitor economy in central London and the impact on local government finance. To pursue that, could you characterise or explore with us the policy benefits of that wider and, we would all argue, more thorough perspective on the stakeholders?

Beth Russell

Making policy is a bit like a sausage machine: lots of different things go into it. A lot of our policy advice is based on analysis and evidence, but it is also based on our own personal experiences and those of the people we talk to and hear from. I have two main points about that. First, we are recruiting different types of people from the people we would recruit in London, with different work and personal experiences. They are writing and giving advice from here to Ministers on all sorts of different policy issues, which is important in itself. That contributes to the debate we have within the organisation about policy issues, with different perspectives coming in. For example, we do quite a bit of red teaming of policy issues. Having people from here contributing to that with different regional and other experiences can only make our policymaking better. My second point is about the relationships. The insight we get from the people we speak to here is different from, as James said, what you get from the people you speak to when you are based in London. I have a completely different set of relationships now than I had three years ago in London, whether it be with regional or local government, mayors around the north, different businesses and so on. There is loads more we can do on that, but I think that is the other really big difference in being here.

Rachel Blake

I am not going to push you to quantify the impact that it has had, but you have just mentioned devolution and devolved authorities and a more devolved approach to policymaking. Could you give an example of how it has changed thought within the Treasury?

Beth Russell

The example I give is more about how we are managing the relationships rather than the substance. One of the things that I have been keen on, not least as a result of the insights from being here, is that the Treasury at senior level now has a sort of buddy system with all the mayoral combined authorities and the mayors. You often hear people say about the civil service and Government, “There are all these different Departments. Who do I speak to? How do I navigate the system?” We have a set-up now in the Treasury where a senior director general or director has a personal relationship with each of the CEOs of the combined authorities. That is one example. On the other thing we are doing, particularly with Manchester, I am leading with Sarah Healey, the permanent secretary in MHCLG, a task and finish group to look at further devolution in Manchester, which will then be a basis for thinking about what we do with other mayoral combined authorities.

Dr Sandher

Thank you for being here with us today, Ms Beckett. My opening questions are for you. Growth is the No. 1 mission of this Government; the Chancellor has clearly stated that, and of course the Treasury has a huge role to play. Will you set out briefly how you evaluate the growth impact of different policies? I am specifically interested in investment decisions.

Sam Beckett

Certainly—let me take you through some of our thinking there. Growth in the UK has been sluggish for a number of years. It is common to a lot of advanced economies that since the global financial crisis and the series of shocks we have suffered subsequently—the pandemic and the energy price spike—we have had quite sluggish growth. In the UK, that manifests itself predominantly as a productivity issue, as I am sure you are aware. Productivity is 19% lower than in Germany and more than that than in the US. On the diagnosis for growth in the UK, we have been thinking about productivity, particularly capital deepening, so investment and looking at the investment picture has been a key part of the Government’s early policy. We have seen relatively weak business investment. That is why the growth mission is doing all the right things on this structural growth issue. We look at stability and getting the public finances on to a more sustainable footing. The Bank gets inflation down, but we make sure we are not pulling against that. We look to support investment, so there was a lot of that in the autumn Budget. There has since been a lot on planning reform, which is a stimulus to investment and productivity, as well as the other pillars of the growth mission. Investment has been a key part of that, along with stability. I would pick reform and planning reform as a big lever that has been pulled.

Dr Sandher

That is great. I am interested in the methodology used to evaluate those different public investments. The rest of the panel are free to jump in.

James Bowler

Sam is the absolute expert. There is a Green Book that sets out how we go about appraisal and evaluation, and looking at value for money. At times it is much maligned, but when people push it, there are all sorts of responses—it has been updated and it continues to be updated—to make sure that it is up to speed. Regarding the Treasury’s role, we will let Departments do it, but if it is over a certain amount, or novel and contentious, the Treasury will have oversight. That is on a project-by-project basis. Then, when it comes to things like a spending review, we look at investment in the round and at how we want to allocate a particular Department’s big-ticket items coming up, setting five-year capital budgets and a 10-year infrastructure strategy. So, having pushed all that into the ring, colleagues can pick it up, depending on where you want to go.

Dr Sandher

I want to pick up on the Green Book in particular. The appraisal or review in 2020 was very useful; I think the updated guidance is very useful. I am particularly concerned about the benefit-cost ratio. At the moment, we have not had a lot of investment outside London, and there is at least an argument that that is partly because of the methodology of the Green Book. As far as I understand it, the benefit-cost ratio, especially when it comes to transport infrastructure, would value that in terms of time lost, and time lost would be valued as wages. Is that your understanding of what the Green Book says?

Sam Beckett

That sounds like it would be the way that you approach transport issues. Time lost and then working out what that means in terms of income and wages forgone is a great way to monetise those costs. Obviously, that is also how we approach congestion issues. The Green Book is guidance. It has gone through significant reform to try to make it take account of much wider issues—the environment, wellbeing, congestion and so on—so that it provides a much broader way of helping Departments to think about evaluating their policies. It is a living document, so we are always very open to challenge and reform there. Come in on the Green Book, Conrad.

Conrad Smewing

Specifically on the benefit-cost ratio question, the review of the Green Book that we did a few years ago, which you mentioned, really wanted to tackle the tyranny of the benefit-cost ratios in project evaluation. It emphasised the importance of the strategic case in investment. In strategic cases, investment is often harder to specifically quantify and boil down into a benefit-cost ratio. If you are looking at something that can transform economies across a very large region but that is not necessarily easily quantifiable, the point of the review of the Green Book was to say, “Pick your strategic objective and then work out the most efficient way of delivering that objective.” It is not the case that we line up each and every potential investment project that the Government could ever do, from aircraft carriers through to schools through to everything else, rank them by BCR and then pick the top ones. It is more about asking, “What are the strategic objectives that the Government are trying to achieve?” and then the benefit-cost ratio is about what the best way of achieving that is.

Dr Sandher

I appreciate that the direction of policy has been here. The campus here is in itself a reflection the BCR. My worry is about the way that BCR still influences policy decisions. Specifically, if the benefit-cost ratio is valued in terms of forgone wages, transport infrastructure projects in London will always be more highly valued. I am from the east midlands, which receives the lowest transport infrastructure investment in the country. Look at our second cities. Do you see the lack of productivity outside London as a key constraint on our growth?

James Bowler

Yes—without putting words into Mr Smewing’s mouth. I think the point is that you can set the strategic case for an investment not just as time lost in commuting. Now, it does not need to be the case that all transport must be measured with the only benefit being the reduction of commuting time, for example. You can set the strategic case as the economic development of the region.

Chair

Those changes to the Green Book rules have been in for a while. Can you give one example, just briefly, of where the change in the rules has meant that we have seen a change—something that perhaps would not have been covered under the old regime?

Conrad Smewing

It is difficult to name a specific example, because you are looking at the entire investment portfolio of the Government.

Chair

Is there something, Mr Smewing, that you think would not have got the green light before the rules changed? Maybe it is too soon, because it was only—I am losing track—two or three years ago?

James Bowler

This applies to quite a lot of regional policy. In particular, the rules are designed to change the fact that, in transport, the only place you invest is where there are large amounts of congestion. It is categorically designed so that that is not the only case. The whole point of that is to stimulate regional investment. I am trying to think of an example, but obviously—

Chair

Perhaps you could think about it and write to us, because it would be helpful.

Dr Sandher

You talked a lot about agglomeration and clustering at the beginning, and I think that is right, but my worry is how undervalued clustering and agglomeration are at the moment in Government evaluation, and that they will continue to be so in spending review policies. I am sure that you guys know all the statistics, but does that not concern you?

Beth Russell

I wanted to add that the Chancellor has announced that we are going to be looking again at the Green Book specifically through this regional angle, so something in terms of both the methodology of the Green Book itself and how the Green Book is used. My instincts are that, although we have made these changes to the rules, the tyranny of the BCR is sometimes the most simplistic way to look at it, and I suspect that that is still what is happening in some cases. That is what we want to be looking at through this review of how we can change the culture of how the Green Book is used, as well as the Green Book itself.

Rachel Blake

I have a quick follow-up. Would the Darlington Economic Campus have got through the Green Book?

Conrad Smewing

Yes.

Rachel Blake

And did it?

James Bowler

It did, and the strategic case is not least that a desk in Darlington—desk, not person—is considerably cheaper than a desk in London.

Rachel Blake

I wanted to ask about growth and the conditions for growth in the co-operative and mutual sector. Do we have the right policy environment for that sector at the moment?

James Bowler

We are doing quite a lot of work, including social impact work and work with academics, think-tanks and the wider sector, on what we can do on growth. Quite a lot of what we are doing in the Treasury is about better engagement and delivery. We are engaging quite a bit with business, but we are also engaging with the wider sectors to make sure that we understand what they think the challenges and opportunities are and how we can help. I guess we are talking about sectors that can spur bringing things together—be the gel that makes communities and other things work. We are particularly interested in doing so, as we are in engaging with business as a sector too.

Rachel Blake

So the sector is on the radar, but the full assessment of any barriers to growth in the sector has not been completed. Is that fair to say?

James Bowler

Yes, I think that is the case. I think there is some sensible work on social impact, social impact bonds and other things, but I do not think that has come to a conclusion yet.

Chair

I just want to be clear, permanent secretary, about the discussion we had at the beginning about the alleged leak of information between the OBR and the Treasury. I understand that it is now being reported that you are saying that the OBR has downgraded the growth forecasts. I just wanted to be clear—

James Bowler

No, I have not said that.

Chair

Yes, I thought you might want to be clear. Could you perhaps be very explicit about what you said, and put it in different words?

James Bowler

I am sorry; I categorically did not comment in any shape or form on the substance of what the OBR might or might not have sent to the Treasury. I did not comment on that. You were asking where a leak might have come from, and I said it was not necessarily the case that it had come from the OBR. I did not say anything on the substance of that. Indeed, most of my remarks were about the importance of keeping that in a private space, so I am very happy to put on the record that I am not commenting on the substance of those forecasts. Thanks for giving me the opportunity to be clear about that.

Chair

Thank you, because that was not quite how I heard it in the room and I just wanted to be clear that I had heard it correctly. I think Lola McEvoy wanted to come in briefly.

Lola McEvoy

I have a question for Beth Russell. How do you think your experience of becoming a fellow Darlingtonian has changed your contribution in your role to things like the levers for growth? I want to know how your experience of the brilliance of Darlington has diversified your views, as you will be contributing to growth for the country.

Beth Russell

A couple of things. I talked earlier about how our policymaking is also related to our own personal experiences. I have moved from central London where I did not drive a car, where I was used to a tube every three minutes and gas central heating and so on, to a village where you are lucky if a bus comes every two hours. I am now a car driver. I know the price of petrol in a way I did not before. That might seem slightly facetious, but those things do make a difference. Our life experiences are a bit different. There are obviously people working in the London office who live outside London, but generally speaking, there is more diversity of life experience now that we have the Darlington campus than beforehand. The other thing is the relationships point that I talked about earlier. I am having different conversations and getting different insights from different people, and I am definitely feeding that into the policy advice that I give to the Chancellor. I think being here makes me better at my job, not least because I have a different experience now from a lot of my colleagues, and I think I bring that to the executive leadership team of the Treasury and in my advice to the Chancellor.

Rachel Blake

I would like to move on to the spending review. Are you on track for June?

Conrad Smewing

Absolutely, yes. Departments and the Treasury are in the midst of preparations for the spending review. We completed phase 1 alongside the autumn Budget last year. At the moment we are in the middle of phase 2, with Departments focusing particularly on the zero-based review elements. That will all come to fruition in June.

Rachel Blake

I am glad you mentioned the zero-based reviews. For those of us who don’t spend all our time thinking about public spending, I would like to give you a chance to talk about what they are. Also, they are a huge amount of work if done properly. How are you making sure that the Departments have the capacity to do that? Could you start by explaining what a ZBR is?

Conrad Smewing

The zero-based reviews in the spending review are essentially a line-by-line review of the baseline of Government spending. It is often the case in budget-setting processes and shorter spending reviews that all the focus will be on the marginal change, so a marginal increase in spending here—

Rachel Blake

Cut this, grow that.

Conrad Smewing

Exactly. This is different. It is the first spending review where we have done a zero-based review like this since, I think, 2007. Departments are going through the full set of their baseline spending, identifying where they think the highest and lowest value for money elements are, and how aligned it is with the Government’s priorities—because obviously there has been a change of Government since the last spending review in 2021—with an eye to shifting money within the baseline from lower-priority to higher-priority spending. As you say, that is quite an intense exercise. It is one of the reasons why the spending review has had a longer run-up than previous spending reviews. We did phase 1 last year, as I say. We actually started the spending review in the summer last year, and the departmental teams that work on it will be going through that process around now.

Rachel Blake

You talked about low value for money and high value for money. What are the assessment tools for working that out? Building on the discussion about growth, how will you be assessing the slow-burn spending?

Conrad Smewing

It is a range of different things, one of which is how it is aligned with the Government’s priorities, which have shifted in some cases. With the priorities for change document that the Government published at the end of last year setting out their highest priorities, there is a question of how spending is contributing to those elements of the missions and foundations—that is one lens. Another lens is about the evidence of impact: what the evaluations of Government policy or different areas of Government spending are saying about how effective that spending is at achieving the outcomes it is designed to achieve. Another lens is around the efficiency of that spending. Another important part of the spending review is whether there is a way of achieving the same outputs of the spending with fewer inputs or lower costs. Those are the kinds of lenses that we are using to look at it.

Rachel Blake

I will give you an example of something that is hugely costly in the short term, but in the long term, investment could change it. Temporary accommodation costs £4 million a day in London. It cannot all be moved through one zero-based review because those are homes and roofs over people’s heads. What would the zero-based review approach to that short and long-term challenge be?

Conrad Smewing

That is an absolutely excellent example. One of the important things about the spending review is that it is a multi-year spending review. It is looking four years in the future on resource spending and five years in the future on capital spending. That allows us to look at longer-term shifts in spending. It also allows us to look at where investments might be able to pay off over a longer period of time. Temporary accommodation is a good example where you may need short-term investments in order to get yourself out of more expensive accommodation—where you are paying annually but not able to see the full benefit in the longer run. That will be part of the spending review as a whole. The line-by-line, zero-based review element of it will be picking up where there are relatively large chunks of expenditure—perhaps ones that have grown over the period—and asking how we can do them more efficiently and effectively.

Rachel Blake

But if you were to just look at that line, you would establish that it was not really generating much growth or investment, so you have to look at that line in the context of the longer-term challenges.

Conrad Smewing

As I say, you have to look at it in terms of everything that the Department and the Government are trying to achieve, and whether that expenditure is doing something vital and necessary, as is the case with many areas of spending in Government. You asked about how we can use that to bend spending towards long-term economic growth. I would say a couple of things on that. As I think Ms Russell was saying earlier, all the Departments are growth Departments. In order to have sustainable economic growth you do need effective public services of all kinds. But it is also the case that in the spending review we are looking at where you could shift spending into something that has higher returns or a longer-term strategic growth benefit. That will be a central bit of what we are looking at in the spending review in the run-up to June.

Rachel Blake

Is every Department zero-based?

Conrad Smewing

Every Department is doing a zero-based review.

John Grady

One aspect of the spending review is the challenge panels of external experts. On them are former senior management from Lloyds, Barclays and the Co-operative Group. Who else is on those panels?

Conrad Smewing

There are a range of people on these external panels. Each of them will have a NED from the Department, but they will also have a series of other people on them. You need to strike a balance of enough distance from the Department to have some genuine external scrutiny but also have decent knowledge of the subject area. I can give you a couple of examples. I have not announced all the names, but the Department of Health and Social Care has Richard Douglas, who is the lead NED, Lord Darzi, who did the review last year, people who are chairs of ICBs, and others. DCMS, for instance, has John Kingman, Claudia Arney and other people like that.

John Grady

That is very helpful. It might be helpful if you provided the Committee afterwards with a list of who the challenge experts are.

Conrad Smewing

We can certainly let you know all the ones that have been identified and are public.

Chair

Are there some people who have not been identified? Is that secret, or is it just that they have not been identified yet?

Conrad Smewing

Some Departments are earlier on in the process than others, so some Departments have not fully identified—

Chair

Okay. So these people who are overseeing public spending will all have their names in the public domain, even though they are not civil servants.

Conrad Smewing

Yes, they should.

John Grady

How have these people been selected? At first sight, one might ask how someone from Lloyds Banking Group, for instance, could help with various aspects of public expenditure.

Conrad Smewing

As I say, it has been for each Department to identify who they think is going to be helpful in providing external scrutiny. It is a balance—being close to the subject area but also having a different point of view, to be able to bring something to the panel. That is the process that people have gone through.

Chair

Was it an open process? Did they reach out to people? Were people asked to apply?

Conrad Smewing

I think it varied between Departments. It was largely reaching out to people that they wanted to have on the panel.

John Grady

What process are they going to follow? Is there a standard process for assessing value for money, or are they all going to have their own process?

Conrad Smewing

It will definitely vary Department to Department, because obviously the issues that are raised are quite different in different areas. If you are thinking about DWP, for instance, you are thinking about a very large number of transactions and how to do those most efficiently. If you are thinking about the Treasury, it is much more of a strategic question of what size and shape of Department we want.

John Grady

But one is weighing up different expenditure lines and different expenditure proposals, so surely they need to be assessed to some common parameters, to have some sort of output that gives comparability.

Conrad Smewing

It is a question of challenging whether the expenditure is being made as efficiently as possible—as I was saying earlier on the zero-based review, how far it is contributing to the priorities of the Department as they now are, and thinking differently about, “Is this the only way that we could deliver this set of outputs or outcomes, or is there another way of doing it?” This is one part of the process. The zero-based reviews are being done by Departments. This is an opportunity to provide external scrutiny and check that things are not being missed and that people are thinking about things in a sufficiently rigorous way.

John Grady

How will this relate to the work of the Office for Value for Money? Will that team talk to these individual other teams? How is that going to work?

Conrad Smewing

Departmental submissions from the zero-based reviews will come back to the Treasury. As part of that, they should be identifying where they are going to deliver the minimum efficiency and savings targets that we have asked the Departments for in the spending review. The OVFM will be helping scrutinise whether those returns from Departments and the targets are stretching enough. The OVFM will be doing that.

John Grady

Let’s say I am sitting in a Department and I have been asked for my opinion, and I am feeling a bit grumpy because it has been ignored—a bit like at home. Will my concern about a spending proposal find its way from the Department to the OVFM or the Treasury as a matter of course?

Conrad Smewing

The external scrutiny of the ZBR will, I am sure, form a part of the return on the ZBR. We will be asking Departments, “What have the external scrutiny panels been saying to you? What suggestions do they have? What thoughts have they had?” It will form a key part of the process.

John Grady

Is part of the process that, as a matter of course, these external experts must report in writing to the Treasury so that ultimately Darren Jones and Rachel Reeves can see what they have said?

Conrad Smewing

We have not asked for separate reports from the external panels, but we engage directly with the Departments and if we wanted to engage with the external panels, we would definitely be able to do so.

James Bowler

I just want to try to put it into context. The bottom line is that Ministers and their accounting officers are accountable to Parliament for every penny in their Departments. There are very big decisions coming on a multi-year allocation of Departments. What can we do between now and then to get to the best decisions on that? We are saying, “Don’t just beaver away in your own silo doing what you have done before. How are you going to get red teamed? How are you getting any challenge on that?” It is still for Ministers to be accountable to Parliament on it. People who are doing these things don’t have set accountability on that, but they can deliver some challenge. We are keen to set up a framework in which they are challenged. That is the first point. Secondly, in a zero-based review of the Treasury, the first thing we have done is to ask our staff what they think we should change—that goes to your point about whether someone is sitting there, frustrated about stuff. In the Treasury, there are lots of suggestions. We're coming back on duplication as a lead thing. The third element is the Office for Value for Money. I have seen the Committee’s report on the Office for Value for Money. We are setting it up not to duplicate, but to fill a gap. It is not trying to replicate the NAO or what Departments are doing. It is a temporary body to try to do a set of things at system level, value for money level and investment appraisal. We are trying to make all that work come together so that we are setting a framework to get to the very best things. We are learning from the past where the danger is that if you leave things to their own devices, you perhaps don’t get new ideas, reforms, challenge and scrutiny. It is not being done with a massive stick from the Treasury, where you must report back so much. This is a framework that people have welcomed.

John Grady

Has the Office for Value for Money found us any savings yet?

Conrad Smewing

The primary focus of the Office for Value for Money at the moment is on phase 2 of the spending review. Specific measures that deliver those savings will be part of phase 2 of the spending review. It has already made a recommendation to the Chief Secretary and the Chancellor in its system reform responsibilities, which the Chief Secretary has accepted. As you know, we have reformed the spending framework so that we will have regular spending reviews every two years. The OVFM recommended that in the off year we undertake thematic reviews of spending that cut across Departments, basically to set yourself up for the spending review that will come after that. It has made recommendations that have already been accepted. The really detailed spending stuff will come through in the spending review itself.

John Grady

The last question from me: have I understood right that the OVFM has so far given one recommendation, or is there more?

Conrad Smewing

It made that recommendation early on as part of its system reform responsibilities. As I said, its main focus is on its role within the spending review, which is scrutiny and challenge on the efficiency targets, and its VFM thematic studies, which it will be conducting for the spending review.

John Grady

So just one so far, but there will be more to come.

Conrad Smewing

Yes.

John Glen

As a former Chief Secretary, I recognise four or five things. First, clearly, vast tracts of Whitehall and different Departments have no discretion over their spending because they are spending money that comes from benefits, pensioners or the NHS. Secondly, Departments guard their budgets institutionally. That defensiveness is pretty embedded. No Department wants to say, “We don’t really need to do this.” Thirdly, legislation is often required to reprioritise. For example, if you are to change the entitlements of benefits you need to legislate—there is a lag to deliver it. Fourthly, there are clear political costs and trade-offs. Clearly, that is a ministerial matter, but it is about clarifying what they are in advance. The fifth thing is that often incentives and investments are needed in order to do things differently. In practice, the number of real choices that exist is relatively small, given the priorities set out last year in the Budget. Is it somewhat misleading to say that there is a zero-based approach, because in practice there is a small number of things? Would it not be a bit more real and true to get into what those choices are, because otherwise we are misleading about how easy this will be?

James Bowler

You make a set of sensible points. Quite a bit of money flows directly from central Government, in formulae, to schools, to benefits, or to other things—

John Glen

You cannot control it.

James Bowler

The interesting thing I would focus on, in where we are trying to make the zero-based review work, is two aspects. First—you will absolutely know this—left to their own devices, people will focus on the marginal and not the stock, so they will focus on the change. We are very clearly hardwiring in that this is about the stock, not the change. We do that through all sorts of things, be they planning assumptions or everything we have set up for line by line. Secondly, a new approach we are taking is to identify the bottom 20% of our priorities. As you will know, having been Chief Secretary, the answer is that Departments will perhaps not unreasonably say, “Everything requires money to do things. We do your priority, someone else’s and our own, but there has to be additional money to unlock it”—invest to save, or whatever. What this approach says is, “Identify your lowest 20% of priorities and use that to transform and move to the Government’s focus, and what they are trying to do”—they have published a “Plan for Change”, which sets that out—and then that is your thing. Departments have been tasked to do that. The Departments will go through it, and we gave you examples. They are required by law to spend money on all sorts of things so unless you want to change the law, that is it. So yes, there is a sense of focus. There is a last thing to say. I imagine all sorts of Committees worry when we get to AI, but a profound change is coming to how we deliver everything in our economy and, very obviously, public services. That is hardwired into this thing. Interestingly, we are not saying that we in the Treasury are the experts on it; we are saying that DSIT is, under the Secretary of State there. That is their work. We will take the £26 billion spent on digital at the moment, and we will want to look at it all together to see if that is going in the right direction. That is three different points.

John Glen

That is helpful, but I think you would also acknowledge that the depiction of the AI dividend has a significant amount of uncertainty around its roll-out Department by Department.

James Bowler

Certainly, yes.

John Glen

Do you create some meaningful qualifications on the delivery? The danger is that you attribute vast savings from mode of delivery to something that is unproven in reality.

James Bowler

Yes, certainly. We are setting out a whole slew of things about how, first, a Department like my own can get assistance to think through this and on how we go about it. Secondly, we are also saying, “Don’t all have a go on your own, in the dark, hiring your own consultants and your own company. Let’s look at it together.” We have a centre of excellence in DSIT, which is doing a very good job actually. We are trying to set that up for success. I think there will be a set of early wins and a set of things that will take more time, but what we cannot do is to pretend and not think about the fact that that transformation is a thing. Nor can we say that any transformation has to come from money over and above what we are going to get and so, if we do not get it, do not transform. We are trying to work through those things. It is complicated and there are some big things, with lessons to be learned from IT and digital in the past. This Committee Chair or someone else from the Public Accounts Committee could give them to us. We are trying to set that up to succeed at the moment. That is deeply sensible. A spending process where you just all ask for a 50% increase in your budget, and then don’t get it, is not a sensible use of everyone’s time, compared with one that genuinely examines that. For my own budget, in the Treasury, we are spending our time examining our budget as to what we are going to do within the thing, not particularly to report into anything, but to start planning on how we are going to do it. There is no magic to it, and it is not immediately straightforward, but we are trying to set it up with that, and give it a bit of time, to try to do that. I don’t know whether my colleagues want to add anything.

Conrad Smewing

The only thing I was going to add, or underline, was that I think the point on the limited set of real choices is true in the short run, but much less true in the longer run. That is one of the reasons why it is so important to do these spending reviews over a multi-year period, so that you can look at, “Okay, this is where I am spending my money today, but these elements are not actually very high priorities. So, over time—over a period of three, four or five years—I can shift the balance so that I am spending more money on my priorities.” That, I think, is a really important aspect.

Chair

Okay. Mr Glen?

John Glen

I will just say thank you. I do not want to ask any more questions; I think you have given us good insight into the rationale for the process, so thank you again.

Yuan Yang

Bringing in Ms Russell and Ms Beckett, if appropriate, could you give a kind of concrete, worked-through example of how the Treasury would negotiate this zero-based review? Let’s say one Department is spending money on youth clubs and another is spending money on filling in potholes; would you be asking for the same set of metrics for both Departments, and what would they be? Or would there be different metrics depending on different Departments?

Beth Russell

As Conrad said earlier, I think some of this will differ by Departments, in terms of thinking about what value for money looks like. The other thing we have not talked about, which I think is really important—and different in this spending review—is that we are also building in some more collective decision-making and discussion processes. Traditionally, a spending review has been a very bilateral process between the Department for Education, or the Department for Transport, and the Treasury—and obviously with No. 10 involved as well. Now that we have the mission and foundation structures, the plan is that, once we have initial returns through the ZBR at the end of February, we will then have a series of more collective discussions in the areas around the missions and the foundations, and be able to talk about prioritisation across Departments within those groupings, not just think about it by Department. That does not quite answer your question of potholes versus youth clubs, but I think it is part of trying to find different ways to make those prioritisation decisions, not just in a bilateral way between the Treasury and Departments.

Yuan Yang

In that process, would the Treasury then be speaking to each Department about specifically, “How many youth clubs are you procuring? How many potholes are you filling?” Would it be that detailed, or would it be more a sense of making sure that their processes are correct? What level of detail would you get?

Beth Russell

Conrad might want to come in, but, in a spending review, we sometimes do get into more detailed discussions, although it generally tends to be at a more aggregate level. But obviously, Ministers want to understand, “What is the implication of this Budget for this particular Department?” So we do not get into all the detail, but then, obviously, it is for the Department to work out, within the priorities that the Secretary of State and the Government have in that area, how they would spend it.

Yuan Yang

Are there any examples—this is perhaps for Mr Smewing—of the green flags that you would want back from certain Departments to make sure that their youth clubs programme, let’s say, was value for money, or some red flags that would show you that it wasn’t? What kinds of examples would you want?

Conrad Smewing

The absolute best thing is a kind of robust evaluation of the impact of the policy—

Yuan Yang

In terms of social value, or in terms of taxpayer money? What kind of evaluation would that be?

Conrad Smewing

Ideally in terms of social value per pound invested. That can be very difficult to do, although it has been done. I think a good example is what is now the Ministry of Housing, Communities and Local Government’s Supporting Families programme, which used to be called Troubled Families. It has an excellent policy evaluation that demonstrates that something like £2.30—I can’t remember the number—for every pound invested is being saved for the public sector by intervening early in these families. That sort of thing is the gold standard of evidence that you would want to see. It is not always possible to get that—often, programmes have not been running long enough to be able to do that—but you can certainly show evidence of the earlier-stage impacts of a policy being effective.

Yuan Yang

So it would be social value defined in terms of the impact on the taxpayers of funding over all public services provision in the longer run—if that data is possible; that is the ideal.

Conrad Smewing

You will tend to look at what objectives or outcomes we are trying to deliver in this particular policy area, and ask, “Is this an effective way of doing it?” It is not tractable in the end to boil everything down to, “This one is £2.30 of social value per £1 and that one is £4,” because you are comparing aircraft carriers and schools, and the questions aren’t tractable. The question is, given this set of policies and objectives that the Government have, are these spending policies achieving what we want them to?

Yuan Yang

I don’t know whether you are looking at millions of spending lines across all Departments, but do you have a sense of how many of those have social value estimates?

Conrad Smewing

I don’t have an answer on that. Often, with quite large lines of public spending it is not possible to do something like that. But for things that are more self-contained—policy programmes or policy packages, like the Supporting Families one—not enough of them have good, robust evaluations, but more of them than in the past. One of the things that we have done in previous spending reviews, and will do again in this spending review, is use the evaluation taskforce to focus, help us assess the evidence of impact, and also ensure that the programmes that we are putting in place or continuing do have robust evaluation panels.

James Bowler

I think the Treasury has two roles. At a spending review, you do want to know what you are buying and what outcomes you might deliver. Also the Treasury needs to set the framework and best practice and make sure that Departments are building their own capabilities—for example on evaluation, to make sure they can do this well themselves. The reason I came in on that is that I don’t want the Treasury to be second-guessing every single thing that a Department does. Sometimes, too much micro interference is at the expense of macro, so we are getting out of people’s hair and letting them do that. So there is a trade-off here, but the key thing you want is a good framework and an understanding across all of setting up Government spending that there is value for money, and that the Departments have the capability and skills to look at this themselves.

Lola McEvoy

Mr Smewing, I just wanted to take you back to the challenge panel of experts. You said that some Departments had not got them yet. How many Departments do not have challenge panel experts set up, and is that a cause for concern, given the timeframe that we are looking at?

Conrad Smewing

I don’t have a full list. It is not many of them and it is not a cause for our concern. We are expecting most of these panels to be taking place over the course of February-March, so I think we are not going to worry about it.

Chair

While we are on the issue of the external panels, having knocked around the system for a while, in the case of an experienced permanent secretary versus someone outside Whitehall, or outside Darlington, I know who would win in most cases. How do you know that permanent secretaries are not going to guard their territory hard, and accept and welcome the advice but maybe not always follow it?

James Bowler

I have not forewarned her that I might say this, but I am asking Sharon White to lead our Treasury challenge panel, with some of our NEDs and others. She is herself an experienced ex permanent secretary, but also someone who has chaired John Lewis, and I don’t think she would take any nonsense from me.

Chair

Okay, but there is a danger that there is not a clear path through for that advice—not necessarily to get in a separate package to Ministers, but to necessarily be taken on board. I just wonder whether it is window-dressing. I can’t quite see the metrics for how—what they will see, how quickly they will get up to speed, sometimes from another sector. For all their intelligence and insight, they might not always understand enough the system that is being dealt with. Sometimes there is a lot of legislation behind things, making it difficult to change things, as Mr Glen said.

James Bowler

I think John is right, but I think it is better than not doing it.

Chair

Would you say it is an experiment this year and we will see how it goes?

James Bowler

No. I think it is a very sensible thing to do. By the way, we have non-executive directors on our boards anyway and it is a very sensible part of policymaking to have a thorough engagement in terms of your policy and be challenged—a red team-type thing. So I think it is a really sensible—

Chair

Are they being paid for this?

James Bowler

They are not being paid.

Chair

How much time are they expected to give to it?

Conrad Smewing

This element of the process will last for only another couple of months or so; it is rapid.

Chair

How do you guard against conflicts of interest, so that you do not have people coming in who might want to bid for a Government contract and get inside information?

James Bowler

They are not taking decisions, and they are not ministerial appointments—

Chair

But they will have access to information.

James Bowler

They will have access to spending and things, but it will be for each permanent secretary in the usual form to consider. Having a sensible challenge in the way—

Chair

Permanent secretary, I do not think anyone is against sensible challenge—

James Bowler

But there is a danger sometimes that you put—

Chair

At the moment, we have experts being cast around for by permanent secretaries not applying. They are the people they know. We have been talking about diversity a lot with Beth Russell and the team up here. That maybe raises some issues. They are not remunerated—that is absolutely fine; people may do these things—but they may have other reasons to get involved sometimes and they may know the sector. They will get access to information, but there seems to be no framework around how that information will be provided or how they will be protected both ways from conflicts of interest. Are you saying that this is a test bed of this process and that you will be honing those sorts of things? I am a little confused about the safeguards around the system.

James Bowler

No, there is a whole set of existing rules and things that need to apply about access to information and the conflicts of interest that we are very used to applying in all sorts of things. Ms Russell can give the examples on growth. The Government are setting up a number of advisory panels on growth. We have an infrastructure one, for example, so there are ways in which people can come in and give advice.

Chair

But there is a difference with panels coming in. Many of us will have had breakfasts at No. 11 or No. 10 over the years at which people have been brought in to have a roundtable of businesses from a certain sector to talk to the Chancellor or the Prime Minister of the day or whoever. This is a group of people who will be crawling over the figures in public spending and in bids to the Treasury for the spending review. That is quite a lot of detailed information, and that is the concern I am raising. Perhaps you could write to us about the safeguards—

James Bowler

I would say that there are sets of safeguards in place that exist when you bring external expertise into these kinds of things—

Chair

Could you write to us with the detail of how it will apply in this case?

James Bowler

Not least, each Department has a set of non-executive directors—

Chair

I keep going back to this, but could you write to us on the details of the safeguards, rather than going through it now? Mr Grady, would you like to come in?

John Grady

No, that’s fine; that has covered my point.

Chair

I want to turn to efficiency savings, because they are part of the same package, in a sense. We have heard lots of reports about how much is to be expected for phase 2 of the spending review. It would be helpful if we could make these pretty short, sharp and factual answers. How much will you be asking Departments to make in phase 2 in terms of efficiency savings, Mr Smewing?

Conrad Smewing

We set a minimum target of 5% of savings and efficiencies. Within that, there is a minimum 1% a year of technical efficiencies.

Chair

So it is within that; okay. Was I right in saying that there are 2% efficiency savings this financial year, which were announced halfway through, inevitably, because of the election? How is that going?

Conrad Smewing

It was 2% savings in ’25-26—

Chair

Sorry. And then in the following year, ’26-27—

Conrad Smewing

It will be 5% from ’26-27 to ’28-29. It will be three years.

Chair

That is over that three-year period; okay. You must be getting some examples of what efficiency savings are expected. Will that come under the full spending review proposals?

Conrad Smewing

The ones in phase 2 will be in the full spending review in SR2. In ’25-26, one very big example is in the asylum system, in the changes to processing to reduce costs on hotels. Reductions in consultancy spend and Government communication spend have been a big element in the ’25-26 spending review.

Chair

One of the dangers, or challenges, of making efficiency savings, even in the financial year after the election, is that if you do it fast, they are not always as efficient as they seem. How will you ensure that they are actually efficiency savings and not just cutting costs, staff or other projects? Maybe some of that is efficient, but how will you ensure that they are actually efficiency savings? That is very challenging to achieve.

Conrad Smewing

As I say, we have split the 5% savings and efficiency target into a minimum of 1% a year technical efficiencies, as defined by the Government efficiency framework. We have a framework that we use to categorise savings by technical or allocative efficiency; technical efficiency is lower inputs for the same outputs or higher outputs for the same inputs, and allocative efficiency is shifting money from one thing, which has less effective outcomes, to another.

Chair

And those are the hard choices that the Chancellor talks about.

Conrad Smewing

Exactly. That is more the 20% lower-value spending ZBR return area. We will use the Government efficiency framework reporting as a means of following that through, so Departments will need to report on how those efficiency savings are being delivered over the course of the spending review.

Chair

In looking at those efficiencies, one of the challenges is measuring them. You say you have those metrics in place, so we will be watching that closely; I am sure our sister Committee, the Public Accounts Committee, will be watching too. One area that can be thrown up as an efficiency is reducing staff. If you are going for more output for less input, as you say, sometimes that can mean staffing numbers. Are you aware of plans in the Treasury and in other Departments to make redundancies?

Conrad Smewing

As part of phase 2 of the spending review, Departments are preparing strategic workforce plans, to see what the right size of workforce is for delivering—

Chair

So there may be redundancies.

Conrad Smewing

There will be strategic workforce plans. There will have to be savings in some areas and there may well be reinvestment in other areas.

Chair

Okay. Let’s say that redundancies might be part of that package. I see you are not willing to commit, but I get where you are at, because decisions have not yet been made. Of course, a redundancy does not make savings until further years, because there is an offer of a redundancy payment. How will you be factoring that in? Or are you expecting Departments to make their own judgments on that?

Conrad Smewing

What we would typically do in a spending review such as this is make those sorts of considerations, alongside other invest to save opportunities. For example, if a Department were to do a voluntary exit scheme and pay redundancies, we would be looking, as part of the discussion, at the costs of that scheme and how quickly the savings would accrue. Coming back to the multi-year point, we would need to look over a number of years and build that into the settlement overall.

Chair

What is the Treasury doing to generate efficiencies, Mr Bowler?

James Bowler

We are doing our own zero-based review, exactly as described. We are looking at a whole set of areas in which we can do things more efficiently on non pay. The headline things are duplication, where we are doing a set of things in more than one area across the Treasury, and flexibility.

Chair

Can you give us an example of duplication?

James Bowler

We do various bits of economic advice in different bits of the Treasury. Some of our international engagements are across several bits of the Treasury.

Sam Beckett

We are having conversations with Ministers to get some internal challenge on the way we are thinking about it—directors general, second perm secs and James, obviously. Some areas might come up. In my area, in the fiscal group, there are people who are monitoring the markets and thinking about financial market moves. In the area managed by my colleague Gwyneth Nurse, they are thinking about financial stability. We both talk a lot to the Bank of England. We have identified that we should go away and look at whether there are any synergies and whether we can collaborate more together, to bring some efficiencies and improvements by working more closely together.

Chair

That is interesting. I completely get how Departments are working across policy areas—policy on Ukraine covers many areas, for instance—but I would have thought that that was low-hanging fruit that you could have found before. What has changed?

Sam Beckett

It gives us an opportunity to look again.

Chair

Do you mean that the zero-based review is giving you the opportunity to look again? Is it because a spending target has been set that you are looking at this now? I am surprised this has not been looked at before, given that we have seen quite big reductions in the civil service.

Sam Beckett

Indeed. This was a particular example of an area where you might see an internal overlap, and where you could find some synergies and savings that way. It is part of a much broader process looking at where we do things that our ALBs do or where there are some other areas of duplication externally. That was just an example of something internal. James talked about how analysis was another area. In my area in the hub of the economics team, we will look at labour market issues, but the team that is looking at broader welfare and other working issues will have some analysts as well. That is another area where you can look for savings and working more closely together. Duplications are just one theme. James mentioned thinking about more flexible resourcing—how we handle peaks and troughs of work over a year or a spending review cycle. There is how we use AI to get more efficient internally. There are lots of lines of inquiry.

Chair

These are all great things, but if we are at lines of inquiry at this point and we are expecting an efficiency saving by the end of the next financial year, there is quite a lot to achieve: cultural change, transformational change and staffing changes. Are you actually going to be able to deliver that?

James Bowler

Yes, we will. It is worth saying that the second phase of the spending review starts in April 2026.

Chair

Yes, but we are talking about the 2%.

James Bowler

You need to take some of the decisions now to inform the budgets that you are going to get, but also work it through.

Look

it is not straightforward. The Treasury is full of brilliant people working really hard. The duplication point is not about people sitting around twiddling their thumbs.

Chair

No, I don’t think we are suggesting that.

James Bowler

There is just a genuine question about whether you can bring people together more in some areas. We are also going to have to prioritise. Prioritising means doing less of, or stopping, some areas of work. In particular for the Treasury, that probably means overlap with other institutions and working out who does what. We could talk about our people survey and all the rest of it. As permanent secretary, one of the driving things that I will be looking at is workload, which is a concern for Treasury staff. We cannot just ask people to do much more with fewer people. We will need to look at our outputs and how we do things. That is why I made the point earlier about not micromanaging Departments but setting framework.

Chair

Indeed. We have to make sure that Departments deliver, as I know from the past decade of my work.

James Bowler

We are expanding our delivery unit with that in mind. It is a fluid thing.

John Glen

Fusing the efficiency and the spending review point, we had OFSI before the Committee a few months ago, which has surged in numbers. We also have the Ukraine policy in the MOD and FCDO. I thought that might be an area of duplication. One of the classic challenges that I feel is worthy of comment is the challenge of bringing cross-departmental teams together to deliver while simultaneously having accountability. For example, looked-after children is a massively costly enterprise, but a crucial policy area to get right. Is there anything you can say about efficiency and the spending review that will deliver better outcomes in these knotty areas? The Office for Value for Money asserted some potential areas, but was reluctant to be committed to what they are. Could you give any more clarity on how you will embed better joined-up Government between Departments, to avoid this duplication as an ongoing activity, but also get some better outcomes?

Chair

Perhaps you could touch on the joint bids to the spending review.

Conrad Smewing

I think Beth mentioned earlier that one of the other things that we are doing very differently in this spending review from what we did in past spending reviews is building in a stage that is much more cross-departmental, focused on the missions and foundations but bringing together those Departments that are working on that area to make sure that all the spending proposals and plans fit well together and you are getting more than the sum of the parts. As the Committee knows, the classic joint bids or cross-departmental working problem has been identified before. Our primary answer to it in this spending review is a new process leading up to a series of ministerial meetings in those areas to make sure that things are working in a proper cross-departmental way. You are right that that is focused around the missions and foundations. The Office for Value for Money’s studies will also focus on areas that are perhaps slightly lower-profile than the missions themselves; they might be knotty problems that involve a number of Departments, or bits of the delivery architecture of the public sector, to make sure that we are making the most out of them. That is what we are trying to do this time around.

Chair

The Committee has looked at this issue before. When you have ringfencing of budgets—we have seen a lot of money going into the NHS—that is a political priority. Ministers, or the Chancellor, have decided that that is a priority, but money spent elsewhere could reduce the number of people needing the health services, for example; social care comes to mind. Has any thought gone into the ringfencing issue and how, especially if you have joint bids, you can have a bit more cross-fertilisation?

Conrad Smewing

A classic case is that the health mission will involve the Department of Health, MHCLG, DWP and other Departments that have an impact on exactly that, so that we can link up.

Chair

But will it mean that the money given to Health could be spent on, say, improving housing, which would obviously have a major health impact? It is quite tricky to do that once it has gone into the Department.

Conrad Smewing

That is at the point before we have fixed budgets. In order to achieve the outcome set out in the mission in the programme for change, we decide where we think the best balance of investment is, collectively as a Government. Some of it will be in the health service; some of it will be in housing; some of it will be in social care and local government. We are trying explicitly to think about that. That might involve pots of money where you do have dual keys, or you are not just allocating straight to the NHS or the local government settlement for adult social care. The process will allow us to do all of that.

Chair

So we need to watch this space to see what happens.

James Bowler

As you have pushed this over a number of years, I just want to say that we are determined to make a lot of progress on reducing the number of central Government grants going to local government—in other words, the number of small penny packets. We have a process in the spending review to try to do that.

Chair

On its own, that will save money, won’t it?

James Bowler

There will be much more flexibility in how they go about things, so that would be a real prize.

Chair

Trusting those local leaders to spend as they see fit.

James Bowler

Correct.

Chair

The other side of the question, Mr Smewing, is cost shunting, which has been a bugbear of mine over the years: you end up cutting in one Department, but an extra cost is then shunted to another Department. How are you going to guard against that in the spending review?

Conrad Smewing

That is what this more cross-departmental phase of the spending review is designed to do. We will get initial returns from Departments, and cost shunting or knock-on impacts in other elements of the public sector will be front and centre in the discussion. A classic example is always the criminal justice system, where you have this long run.

Chair

Would that mean that, for example, the Home Office could say, “Hang on a minute—if you close mental health hospitals, the police will have extra costs,” so other Departments will crawl over each other’s spending reviews and make those points? Is that how it will work?

Conrad Smewing

That is the point in the process at which we are explicitly making room for exactly that kind of question to be asked.

Chair

I can see some interesting political discussions at that point, and possibly blood on the carpet.

Yuan Yang

Does anyone on the panel know which subjects the Office for Value for Money is looking at? I think you mentioned two or three subjects.

Conrad Smewing

The subjects that it is looking at are currently being discussed with Ministers, so we should be able to confirm them relatively soon. It is looking at things like the temporary accommodation issue that was mentioned earlier.

Yuan Yang

We look forward to that. Secondly, I know that efficiency savings are a goal of almost every single Government. Have there ever been reviews of previous efficiency savings and whether they have led to a reduction in service provision?

Conrad Smewing

The answer is yes. In previous spending reviews, there has frequently been reporting on the impact of efficiency savings. For instance, after the 2010 spending review there was a series of reports; I think they were audited by the NAO. Your question goes wider, though, to the impact of those savings on services. That can be harder to get at than the question of whether the efficiencies have been delivered by the relatively narrow definition of “Did we save the money we were hoping to save?” It is a harder question to get at.

Yuan Yang

I suppose the definition of efficiency savings, as I understand it, is about trying not to lead to a decrease in provision. You are trying to find other ways of saving cost, for example on the procurement side.

James Bowler

Can I flip it around a bit? There has been quite a lot in the press this week about public sector productivity. In particular, the ONS released some experimental data on the NHS, which essentially tells the tale of how as workforce numbers go up, far from that being matched with public sector productivity going up, productivity is actually falling. Different people have different stats on this, and that is understandable, but another way of looking at your point on efficiency savings is about the productivity of the public sector. That really matters: it matters to the Treasury, it matters because the output is better public services, and it matters to the whole economy, because the public sector is part of the economy. We will be looking at public sector productivity as part of this.

Yuan Yang

I am concerned about sectors in which productivity is more or less fixed. For example, you need one teacher for, say, every five toddlers in a pre-school. You cannot change that ratio very much, unless robots become very effective in the next few years.

Chair

I don’t think that was a policy proposal from Ms Yang.

Yuan Yang

In those sectors—particularly in unprotected departments, such as funding for local councils, which fund social care, SEND in schools and so on—it is predominantly women who pick up the slack and withdraw from the workforce when services are cut back, as we saw during the pandemic. Is there an assessment in the spending review on the impact on the workforce, and particularly on women and carers?

James Bowler

Others might want to come in, but I will say that both this Government and the last Government have made significant interventions on childcare explicitly with that in mind. On impact, we have had a really quite rigorous set of things. In particular, these are policies that we have put to the OBR as part of a fiscal event process and have debated with the OBR. The OBR has made a judgment on the impact that those policies will have, particularly on people staying in or returning to work. These are predominantly women. It scores that impact. You get a positive growth benefit, so, if you like, the policy is cheaper than it might otherwise be. That whole way of going about policy and looking at those second round effects is a deeply important bit of progress that we are making, in relation to childcare and other things. The next step, obviously, is asking whether that has come to pass and whether those interventions are working.

Chair

We need slightly shorter answers, although it is great that everyone is so enthusiastic.

Yuan Yang

Will you conduct an equalities impact assessment? If so, how long and how rigorous will it be and how will it be done?

Conrad Smewing

There are equalities impact assessments on all of the policies in the spending review, and we will do that again this time.

Chair

Will they be thorough? There have been times in the last few years when all we have seen in legislation is “There is no equalities impact issue.” Will yours be fuller than that?

Conrad Smewing

They will be like the equalities impact assessments that we have done in previous spending reviews. We will do them for this one as well.

James Bowler

And the distributional impact assessment that we do at fiscal events is world-class.

Lola McEvoy

A number of us on the Committee are interested in the National Wealth Fund. A recent Treasury press release states that, “The National Wealth Fund has fuelled 8,600 jobs in the last six months, unlocking almost £1.6 billion of private investment”. Can you elaborate on what happened there, how you quantified those jobs, where they will be and any more information?

Beth Russell

The National Wealth Fund makes the amount of investment deal by deal and in a lot of cases those investments have specific job numbers attached to them. I have a whole list of the specific investments and we can provide those, with the number of jobs where there are jobs attached to them. I think that was for the period since the UK Infrastructure Bank transitioned into the National Wealth Fund, over the last six months or so.

Lola McEvoy

On the National Wealth Fund investments, we were previously talking about the scrutiny of public departmental spending. Through what lens of value for money should we look at the National Wealth Fund? Are we applying the same value for money tests on these investments? How are we testing the impact socially on the areas that are getting these projects?

Beth Russell

They will look deal by deal at things like jobs created, but they are particularly looking at filling a gap where private sector investment would not otherwise take place. They have an objective overall to crowd in private sector investment at a three to one ratio. That is also a guide to where they would particularly look to invest.

Lola McEvoy

When you are thinking about the National Wealth Fund and the success stories, have you got any examples of the projects that are particularly good for value for money, or that you are particularly proud of as a Department?

Beth Russell

The National Wealth Fund has been accelerating its investment over time. Some of the recent investments include investment in EV charging infrastructure and investment in Cornish metals to reopen a tin mine to support key sectors like electric vehicles. There is a particularly interesting investment they are doing alongside some of the big banks around retrofitting homes. They are investing alongside them to incentivise the banks to operate in that area. Those are just some of the examples. They are working on a pipeline of future investments as well.

Lola McEvoy

A final one from me on that. On the jobs created, I am always interested in the double counting of jobs and whether it is an existing job or a gig. If you are a construction worker, you work in gigs. You do six months on the site and then you go to another gig, but that is the same person doing that same job. I am interested in that.

Beth Russell

I do not know the answer to exactly how that is calculated, but we can find out.

Chair

Yes, please do, because every MP is always obsessed with exactly how real the jobs are. Ms McEvoy is a great champion on that. Dr Jeevun Sandher is next.

Dr Sandher

I also want to ask about the National Wealth Fund. The German development bank, KFW—I am not going to pronounce the German.

James Bowler

Go on.

Dr Sandher

I am in politics—it is very dangerous. KFW raises finance through private sector loans. Was that looked at as an option for the National Wealth Fund? Or private sector bonds, more accurately.

Conrad Smewing

You are talking about whether the National Wealth Fund would itself sell bonds through the markets?

Dr Sandher

Yes.

Conrad Smewing

I think that that was looked at and I think it is allowed for in the legislation. But there is a value for money test on how they source their financing, and it will tend to be the case—I am sure there might be circumstances where it was not, but it will tend to be the case—that it will be more efficient for the DMO to tap the markets using the gilt market—

Chair

The Debt Management Office.

Conrad Smewing

And then on-lend to the NWF. It is a question of the most efficient way of raising the financing.

Chair

Thank you.

Dr Sandher

What would the treatment of bonds be? Would there be a different treatment within the fiscal rules, given the liability accrued, if it was at the National Wealth Fund, because you would expect to be paid back in full versus raising it through the DMO?

Conrad Smewing

On how it would work, both the Debt Management Office and the National Wealth Fund are within the public sector. Their liabilities would both score within the public sector, so there would be no difference in the debt. The big difference with the National Wealth Fund is under the new net financial debt rule. The financial assets, which the National Wealth Fund holds on its balance sheet, would net off that rule. It is not so much about where the debt is sourced from; it is about how the cash is used. If the NWF has financial assets, which will be returning cash to the public sector, that is netted off.

Dr Sandher

So in one sense it becomes neutral under the fiscal rules, as long as they are productive investments, as you would expect them to be.

Beth Russell

Then we have a financial transactions framework around that. Sam might want to say a bit more around making sure that we have control, despite the fact that it is neutral from a financial liability perspective.

Sam Beckett

It is quite an advantage of the new fiscal rules that it is a broader measure that takes on financial assets as well. Under the old PSND rule, for all intents and purposes a grant was scored in the same way as a loan and the same way as an equity investment, so the Government was forgoing good investment opportunities. The net financial debt measure is quite a step forward in that regard. As Beth says, of course, because they are neutralised—because you get the assets offsetting—we have put guardrails in place on the use of the financial transactions. There has always been a financial transactions regime across Government, and that remains, but on top of that, all financial transactions that are significant have to go through an expert body that is set up and able to value them appropriately and do a good deal for the taxpayer—like NWF or BBB—

Chair

Just to be clear—the National Wealth Fund or the British Business Bank.

Sam Beckett

Sorry; yes, indeed. UK Export Finance is another example. The valuations between these assets can change over time, so they need to be recorded, and will show up in net financial debt. They are going to be published every year. We are going to have a transparent report on that. Those asset valuations will have been done by the NAO. This report will bring them all together, so we are completely transparent about what is going on under the bonnet of netting off assets.

Dr Sandher

That is very helpful. I want to pick up on where the Treasury has gone wrong previously with the industrial strategy, which is, to some extent, having losers pick the Treasury, lots of policies changing, very top-down and a lack of supporting investment. Here we have a brand-new investment strategy—an industrial strategy. How do you ensure that the supporting investments are made? For example, if the National Wealth Fund issues a loan for a gigafactory, how do you ensure that that area has the skills needed or similarly the transport infrastructure needed, as I think we covered briefly before?

Sam Beckett

As Beth outlined, it is a three-to-one partnering with private sector money, so in addition to what the Government will look for in terms of making sure those investments are going to yield a return and be really good investments, you have the private sector alongside, which will be doing its due diligence and challenge as well. That kind of framework helps avoid poor quality investment decisions.

Beth Russell

The other thing that is really important about the National Wealth Fund compared with the UK Infrastructure Bank is going to be the extremely close working with mayoral combined authorities and regional government. The National Wealth Fund is already working alongside some of the MCAs to work up investment propositions. As you say, there is then a broader conversation to be had in that region or area about how that fits into a wider regional strategy and the infrastructure and other things that you need to support those investments.

Dr Sandher

At the moment, the thinking seems to be very much case by case, individual projects, but the industrial strategy has to transform the structure of economic activity across the country by areas and by sectors. Is that a change in your way of thinking? Have you found it easy to implement that across the organisation?

Beth Russell

The National Wealth Fund will still look deal by deal at what it makes sense to do, particularly in terms of crowding in private finance, but will be very focused on the industrial strategy and the industrial strategy sectors, particularly green energy, but broader than that, in terms of the scope and focus of where they want to invest. That is going to be very much a guiding line for their areas of focus.

James Bowler

I will briefly answer your wider question. Take something like the Chancellor’s announcement about the Oxford-Cambridge corridor that she made recently, that requires action from the university sector, the transport sector, a lot of water changes—sewerage and water are a big part of that—planning, skills and all of that. It is a very good example of all that you need to do to effect change in areas and not just, you know, announce a railway or a change. There is a whole set of delivery with Lord Vallance making sure that it all actually happens. There you are pointing to, this has been announced before, but what is different now?

John Glen

I was involved in the legislation setting up the UK Infrastructure Bank. The National Wealth Fund relies on the same CEO, the same staff, the same board, the same location. The mandate is the same. I notice, Ms Russell, you said about the relationship with local authorities and regional government. There was always provision for that under the UK Infrastructure Bank. We went over the new fiscal rules. Can we just clarify for the Committee’s edification what is actually meaningfully different between the UK Infrastructure Bank and the National Wealth Fund? The headline numbers are still quite modest.

James Bowler

More money and a wider remit.

Chair

That is the extra £5 billion?

James Bowler

Yes, and a wider remit than the UKIB. To your first point, it took three years to set up the UKIB in Leeds.

John Glen

It did.

James Bowler

It would not be sensible to set up a brand-new bank somewhere else. You might imagine that that might take another three years. We are walking towards the synergy rather than away from it.

Chair

So actually this is a moment where Government did not create new infrastructure?

James Bowler

Indeed, I seem to remember giving evidence to the Committee and you said, “Are you going to scrap the UKIB?”, so we are building on it.

Beth Russell

Just to mention another couple of specifics as well, we will be giving it the ability to use an expanded suite of financial instruments, including performance guarantees, and we are also talking to it about a new risk framework, which would enable it to take more risk than the UKIB did through the amount of economic capital that we give it.

Chair

But not ARIA-level risk—somewhere in between.

John Grady

The National Wealth Fund’s predecessor, the UK Infrastructure Bank, led to a regeneration project in Teesside, the value for money of which some have questioned. It is probably best for the panel to answer these questions with either a yes or a no, and then follow up in writing, because time is marching on. Will the National Wealth Fund play any role in assessing the value of the projects it lends to in advance of the lend and then post the lend as the project is implemented?

James Bowler

Yes.

John Grady

Could you follow up in writing just to set out how you will do that?

James Bowler

Yes.

John Grady

Then we can move on.

Chair

Well, there you go—Mr Grady and Mr Bowler are being super-efficient.

Yuan Yang

Ms Russell, you mentioned earlier that the Treasury is also conducting its own zero-based review of its own costs. Do you consider the Treasury indemnity to the Bank of England’s asset purchase facility as one of those costs? I note the publication from the Bank yesterday that estimates around £30 billion a year is being transferred from taxpayers to commercial banks as a result of that historical indemnity.

Beth Russell

I will have to ask my colleagues.

Sam Beckett

On what the Bank published yesterday, it does its transparent accounting for the APF quarterly. It had the lifetime costs, ranging between £55 billion and £115 billion in net present value terms. Obviously, it was always seen that QE, which gained us, I think, £124 billion, would reverse, and now it has actually gone in reverse and we are running down those numbers. The pace of that is a monetary policy decision and not something that we get involved in. When it comes to thinking about the value of that, you have to think about what QE was for and the circumstances in which—

Yuan Yang

I am not questioning that action needed to be taken in the light of the financial crisis and so on, and the origins of QE and the indemnity signing in, I think, 2008—it was around that time, or 2009, perhaps. My question is, in the light of the fiscal situation that the Government are now in, and given that you are conducting a fresh zero-based review, do you consider that there is value for money in this arrangement? If so, what kind of value do you think is generated from that arrangement?