The Treasury Committee published its Report on the Spending Review 2010on Friday 26 November. The Report provides cross-party commentary on theGovernment's Spending Review, which will shape public policy for the coming Parliament.

The Report notes that scrutiny of the Government's consolidation reformplans will be one of the Committee's key tasks over the entire course of theParliament, and that it expects to conduct regular enquiries into theGovernment's fiscal and expenditure planning, and the OBR's forecasts.

Today's report is afirst step towards a higher level of scrutiny of public spending thanpreviously undertaken. Whilst there is general party political agreement thatconsolidation is necessary, there continue to be differences over its precisemethod, timing and pace. It will be a major challenge to ensure that all partsof the United Kingdom benefit from future growth. The Government has announcedsome policies designed to help achieve this, and we will monitor their progressclosely.

Process

The Report notes the use of the Public Expenditure Committee, and a widerange of systems of meetings and more select groups, such as the "quadrilateral",formed of the Prime Minister, the Deputy Prime Minister, the Chancellor and theChief Secretary. It notes that these arrangements, reflecting the coalitionarrangements, resulted in a collective decision-making process.

Spending

The Report examines some of the key spending decisions. It concludesthat although ring-fencing might fulfil electoral promises, it could also leadto allocative problems across government as a whole, and reduce scrutiny of theefficiency of ring-fenced departments. The Committee notes that the decision touse the NHS budget for social care and the DfID budget to support fragile andconflict affected states suggested that ring-fencing had not been absolute.

There has been a great deal of ring-fencing inthe current spending review. The risk is that ring-fencing distorts spendingpriorities, particularly in a radical review such as this. I note signs thatthe Government has considered how the budget in ring-fenced departments can beused to support wider objectives.

Defence

The Report examines the allocation of the defence budget at some length.The Committee was particularly concerned by the aircraft carrier contract withBAE, both in itself and, as a symptom of wider difficulties in controlling thedefence budget. Over the course of the inquiry, the Committee elicited newinformation about the contract, and the Report notes that in response to aquestion from the Chairman of the Committee the Prime Minister has agreed toprovide the Committee with the maximum amount of information possible.

Successive governments have struggled to dealwith an overcommitted defence budget. The Treasury should draw on the lessonsfrom the seemingly 'unbreakable' carrier contract to analyse all future Ministryof Defence procurement to ensure that value for money is being obtained,particularly when little competition exists in the market.

Distributional analysis

The Committee welcomes the Treasury's willingness to increase itsdistributional analysis, as previously recommended in the Committee's report onthe June budget. Today's Report analyses the differences between the Treasurywork and that done by the IFS, and calls on the Treasury to consider whether itcan adopt some of the IFS's proposals. It also recommends that the calculationunderpinning the analysis should be published, to provide transparency andencourage debate.

Analysis like this had previously beenprepared for Ministers, but not made public. The Treasury has now provided moreinformation than ever before. We welcome this openness, and see scope for itsfurther extension.

'Progressive' and 'fair'

The Report notes the difference between "progressive", atechnical economic term, and "fair".

It would have beenextremely difficult for the overall consolidation to have been progressive.Fairness and progressivity are two different things. Decisions that aretechnically regressive are not necessarily unfair. Whether or not theconsolidation is fair is, and will remain, the subject of political debate andthe Treasury Committee will continue to take evidence on it.