Cabinet ministers have been warned they must find more savings in their departments as the Chancellor said “every pound” of Government spending will be scrutinised in a major budget review.
Secretaries of State are being told that any outgoings which are not contributing towards one of Labour’s “priorities” must be cut as Rachel Reeves vows to wield “an iron fist against waste.”
In letters sent by Chief Secretary to the Treasury Darren Jones, departments will be told to brace for “difficult” spending decisions in order to restore trust in the Government’s handling of the public finances.
Every pound of departmental spending will be face a “line-by-line review” involving external finance experts from banks and think tanks in order to ensure it represents good value for money, the Treasury said.
The Chancellor will on Tuesday launch the next round of Government spending, and is expected to warn departments that they “cannot operate in a business-as-usual way when reviewing their budgets for the coming years”.
She will insist that areas focused on Prime Minister Sir Keir Starmer’s “plan for change”, which includes targets to improve living standards across the country and build 1.5 million homes, must be prioritised.
Ms Reeves said: “By totally rewiring how the Government spends money we will be able to deliver our plan for change and focus on what matters for working people.
“The previous government allowed millions of pounds of taxpayers’ money to go to waste on poor value for money projects. We will not tolerate it; I said I would have an iron grip on the public finances and that means taking an iron fist against waste.
“By reforming our public services, we will ensure they are up to scratch for modern day demands, saving money and delivering better services for people across the country. That’s why we will inspect every pound of Government spend, so that it goes to the right places and we put an end to all waste.”
Under the Treasury’s plans, departments will ensure budgets are scrutinised by “challenge panels” of external experts including former senior management of Lloyd’s Banking Group, Barclays Bank and the Co-operative Group.
These panels, which will also involve think tanks, academics and the private sector, will advise on which spending “is or isn’t necessary”, the ministry said.
The Treasury said work has already begun, with an evaluation of the £6.5 million spent on a scheme that placed social workers in schools finding “no evidence of positive impact on social care outcomes”.
“Departments will be advised that where spending is not contributing to a priority, it should be stopped,” it said.
“Although some of these decisions will be difficult, the Chancellor is clear that the public must have trust in the Government that it is rooting out waste and that their taxes are being spent on their priorities.”
Ms Reeves had already announced efficiency and productivity savings of 2% across departments in her autumn Budget as she seeks to put the public finances on a firmer footing.
In a speech in east London, Chancellor of the Duchy of Lancaster Pat McFadden hinted at a further squeeze.
“At the Budget the Chancellor demanded efficiency and productivity savings of 2% across departments – and there will be more to come,” he said.
“As we launch the next phase of the spending review at its heart must be reform of the state in order to do a better job for the public.”
The Liberal Democrats accused the Government of “missing opportunities and making self-defeating decisions” in the Budget, and urged it not to “make the same mistakes” in the spending review.
The party’s Treasury spokeswoman, Daisy Cooper, said: “Leaving the social care sector in crisis is a false economy that will only put people at risk and damage the public finances.
“The Government cannot afford to make the same mistakes in the spending review as they did with the Budget, missing opportunities and making self-defeating decisions.
“The Government must use this Review to invest to save, taking into account the billions of pounds that could be saved in the NHS budget by investing.”
