Proposing a reform to the way the Government funds and delivers its ambitions is not a new idea. However, the urgency of the matter is often overlooked, and the complexity of implementation is seen as a distraction from the primary task of ‘getting things done’. This has led to the current structures of allocations becoming deeply ingrained in processes and reflected culturally in the officials delivering public services. 

The wider change in outlook for the public sector and the economy in the next five years presents a challenge to this orthodoxy. Numerous government projects continue to fail to deliver their desired outcomes, and the self-evident nature of some of our critical infrastructure is creaking; £93.7bn worth of GMPP projects were red-rated for delivery in 2022/23 (IPA Annual Report 2022-23). However, in process terms, the current system works to justify projects, and accounting officers can explain how value for money is being ensured through compliance with the Green Book guidance and public spending rules when under the scrutiny of the Public Accounts Committee despite not achieving the desired outcomes.  

Without a shift in how we measure value for money, we risk continuing to see failures in delivering desired outcomes and consequent overspending to get projects back on track. In a time of tighter government spending and a less favourable balance sheet, spending wisely and achieving outcomes is crucial. This requires us to re-evaluate our current system, focusing on evidence and outcomes over process and bureaucracy. At Baringa, we believe it is time to start making a change and there are four ways we would do it by: 

1. Committing to minimum ‘bedrock’ funding over multiple years to programmes with commonly and broadly agreed outcomes 

The country often seems to have core outcomes on which it is commonly agreed that public service or infrastructure should be focused. Most commonly, this is expressed as healthcare provided free at the point of need, but it also extends to protecting the security of the realm, keeping the peace, or connecting the nation through different means of transportation or communication. The beliefs around these outcomes have evolved over time, e.g. the expectation for connectivity to high-speed internet over the last decade, but for some, such as commitment to healthcare, beliefs have remained fixed for nearly 100 years. Given that these common outcomes are known and understood and are unlikely to change in the next decade, why does our system of funding public services and investments not also mirror this horizon?  

The private sector is better at recognising these long-term trends and can think in terms of “platforms” that apply to new technologies, make capital investments, or develop the next generation of capabilities. The public sector could start applying this platform mentality and funding to these long-term outcomes either on technology (a new tax or patient record system) and capital programmes, whether for fixed infrastructure (high-speed rail or new road networks) or industrial capability (new fighter planes or submarines). In all of these, the funding will be for many years, and crucially, the general outcome is commonly agreed upon and definable, i.e., we need an efficient, fair tax collection system, improved national connectivity, and a modern defence capability.  

What is rarely agreed upon or fixed in advance is the specific, detailed requirements, and they never can be. It is a good metaphor for thinking about how funding can be allocated to the ‘platform’ over many years, knowing that the outcomes will be delivered even if the timing isn’t. The world changes, technology improves, citizen behaviour changes, global events happen, etc. Yet our funding system tries to predict the requirements and then allocates funding accordingly. This prediction/guess is nearly always wrong, and then hours of effort go into justifying why and asking for more money. Giving the certainty of bedrock funding over a medium-term horizon will help uncouple policy thinking from short-term funding limitations. This will deliver better, more creative, long-term strategic policy thinking, adapting the latest innovations and technology whilst providing scope to make prioritisation at the point of drawing down the necessary funding. 

2. Redesigning the HMT business case approval processes to allow for agile allocation of funding to programmes which can deliver benefits faster or more efficiently

This change can partly be achieved by changing the way existing HM Treasury guidance is applied through approvals, taking a more holistic approach to value beyond the traditional obsession with the preferred option’s benefit-cost ratio (BCR), which can often be overcooked with overly ambitious benefits or unrealistic costs. The focus on the BCR can overlook wider measures of value such as contribution to policy outcomes, meeting broader targets, and ability to contribute to cross-department working, which is the public value that may better deliver desired outcomes. HM Treasury’s Green Book has already been updated to give more consideration to strategic issues, but this still needs to happen consistently through a change in culture and focus. 

The process of spending control exercised through Green Book-compliant HM Treasury business cases illustrates this problem well, with a focus on process and bureaucracy over outcomes and agility. Business cases often ask departments to speculate on spending requirements long before certainty is known, providing single “point figures” rather than anticipated ranges. This is because the system is geared towards shorter-term forecasts and the ever-looming question of “fiscal headroom” for chancellors to pull rabbits out of hats at budgets.  

However, this could be changed; HM Treasury could introduce a phased approach to funding in these instances, which would mean approving the total spend required for a business case upfront but only releasing funds periodically, subject to evidence that value for money is being achieved and the project is on track to deliver the outcomes set out in the original business case. Taking an agile approach is approved by HM Treasury’s Green Book guidance, but this is not commonly understood across the Government, and it would benefit from standardised Agile Business Case Guidance. Enhancing this guidance would empower delivery and finance teams across the Government to gain approvals in as simple a way as possible and focus on delivering outcomes. Taking this staged approach to funding is more akin to private investment rounds where programmes can demonstrate clear onward funding requirements in line with the delivery of set outcomes (OKRs) per period.  

When phased funding is deemed the right answer, Treasury officials should work closely with the initiative’s Senior Responsible Officers to agree on outcome metrics to measure the return on investment. These outcome metrics can be embedded in contracts with any third-party suppliers, requiring them also to deliver these outcomes, which can be enhanced through better contract management against these outcome metrics.  

3. Restructuring the existing Government review process to make it more embedded and real time, focusing more on outcomes delivered rather than the process 

The current system is based on one-off review events, such as IPA gateway reviews, Cabinet Office functional spending controls, HM Treasury approvals (Treasury Approval Points) and Major Project Review Group (MPRG) approvals, involving many people across the centre in a short time to deliver a fixed decision gate. For a brief period after the review, the recommendations are valid and, if delivered, usually make a difference. However, a lot happens between reviews, and the event itself is often a well-choreographed set of meetings, with everyone prepped on what to say. Despite the growth and maturity of the Infrastructure Project Authority, 45% of the Government Major Programmes portfolio (GMPP) are Red or Amber in 2023, this has increased significantly over the last decade (IPA Annual Report 2022-23).  

We suggest moving to more real-time output-based analysis using technology solutions to produce dashboard information as close to real-time as possible. The choice of what data to use and the initial setup will require effort, but they should then be embedded in all major programmes, and the reporting should be as simple as possible using automated data rather than depending on manual reporting. This will allow programmes to be better measured against the outcomes agreed upon for the bedrock funding, with the teams in the Treasury and Cabinet Office focused on these outcomes as their primary metric rather than being tied up in a bureaucratic process. This approach should lead to more projects being stopped if they fail to deliver the outcomes as desired, but this embraces the best practices from the private sector.   Combined with staged funding, this should lead to better overall value for money for the public purse and improved transparency on the allocation of government funds.  

4. Creating cross departmental leadership with central funding which can be allocated in the right place at the right time to deliver a system wide outcome 

Most people working in the ‘system’ agree that more cross-government work will generate better outcomes. The current processes nearly always prevent collaboration on anything more than a superficial level, and there is nearly always a sensible reason why people aren’t incentivised to collaborate. The way to change this behaviour is funding. If there is an end-to-end ‘mission’ or goal, it will almost certainly involve multiple departments or agencies; let’s take ‘reduce homelessness’ because few politicians are talking about it and yet most people would like fewer people to sleep rough. Reducing homelessness would need local authorities, NHS trusts, the Home Office, the Prison Service, the Probation Service, the 3rd sector, Transport authorities, etc, all working together over a sustained period of time. 

However, in order for this to work, some foundational things need to be in place. Firstly, political stability is crucial as changing the Minister’s response for core outcomes every 18 months inevitably leads to changes in priority and approach, which should be minimised. Secondly, there needs to be visible cross-departmental leadership for these ‘missions’ with clear governance to allocate finite available funding effectively. This will inevitably require changing behaviours, responsibilities, rewards and incentives to enable better cross-government collaboration and may require new governance structures to be established and embedded.  

With these measures in place, foundational funding for core outcomes should be agreed upon and safeguarded over the medium term. This means that such funding cannot be taken from crisis funds, which should lead to a reduction in discretionary spending. To enable this, outcomes and funding must be agreed upon for five-year periods, which could be in the form of legislation or the plan for Government in a new version of the King’s Speech, which covers delivery as well as legislative changes, similar to the approach of New Zealand who produce annual reports on how outcomes are being achieved and value secured.

Why act now to agree to bedrock funding?  

Every pound spent on achieving better public service outcomes matters, especially in a fiscally constrained environment where spending decisions will impact how we live and work for many years. Therefore, it is ever more important that the Government moves with the times and changes accordingly. 

The current system of funding and delivering public services in the UK is deeply ingrained in processes and systems and culturally embedded in the officials delivering those services. However, the public sector and the economy will change significantly in the next five years, challenging this orthodoxy. Without a shift in how value for money is measured, we risk continuing to see failures in delivering desired outcomes and overspending. Therefore, it is essential to re-evaluate the current system, focusing on evidence and outcomes over process and bureaucracy. We should meet this challenge through committed minimum ‘bedrock’ funding to programmes with commonly and broadly agreed outcomes over multiple years, redesigning the HMT business case approval processes, and restructuring the existing government review process to make it more embedded and real-time. 

Baringa has experience working across the public sector with clients to help them deliver the outcomes desired by the public and solve their most complicated problems. To find out more about this work, reach out to Graeme Swan, Partner and Baringa’s Government Sector Lead.  

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