Comment Blog 1 November, 2023

A game-changer for public investment or PIE in the sky?

Sebastian Rees
Senior Researcher

At Reform, we’ve long argued that building sustainable, high-quality public services requires a shift towards prevention. More of the same simply won’t cut it given the huge pressures facing the State from an ageing population with more complex needs. However, it’s one thing to call for a pivot to prevention and quite another to achieve it.

Though there are many barriers that stand in the way of preventative transformation, the key obstacle remains a short-termist bias. The benefits of prevention take many years to accrue and so proponents of the shift find it hard to make their voices heard given the daunting set of challenges governments face right now. So, when proposals emerge to overcome these obstacles and shift the curve of public investment towards prevention, we’re all ears.

In recent weeks, our friends over at Demos and the IPPR have both set out proposals to do just that. Both call for the same approach — Treasury should establish a new category of prevention focused spending — Preventative Departmental Expenditure Limits (Demos) or Prevention Investment Expenditure (IPPR). Prevention is undermined, the argument goes, because it is mostly rolled into day-to-day (RDEL) spending. The urgent crowds out the important and budgets are squeezed. Separate out PIE/PDEL and you can “prioritise and protect” preventative spend.

So, could this work?

I’m not entirely convinced.

There are a range of thorny problems that need to be overcome first.

Firstly, the problem of classification — what’s in and what’s out? This is trickier than it sounds. Take healthcare for example — most health spending has a reactive and a preventative component, even in the same setting. Local authority commissioned public health services for drug and alcohol misuse, sexual health or smoking cessation are both preventative and responsive to existing need. Should they be counted against the RDEL or PDEL line? What about primary care? GPs both provide a reactive service, dealing with the health concerns we’ve come to them with, but also help prevent demand being met in more expensive settings (like hospitals). Are they an element of the preventive state?

A more fundamental challenge relates to what exactly we are trying to prevent. Single departmental ‘prevention’ budgets may help meet specific challenges — for instance, reducing avoidable hospital admissions in healthcare or preventing long-term offending for the Ministry of Justice. But many of the social challenges that lead to increases in demand for public services are ‘wicked’ and cross-cutting. Higher spending on teachers’ salaries (RDEL — or should this be PDEL?) may lead to improvements in attainment, and correspondingly higher levels of well-paid employment. Day-to-day spending in one part of government may help achieve the preventative aims of another, but this is not accounted for under a single-departmental approach.

Both reports give these technical challenges a swerve, arguing that independent experts or a Treasury Working Group should be the final arbiters of prevention, but without clear-cut answers to questions about classification, it is difficult to see how new approaches to public spending get off the ground.

However, even putting aside these technical challenges it’s not clear whether reclassifying spending will actually bring about a preventative shift. We can look to history for why this might not be the case.

In the late 90s, government separated expenditure into capital (CDEL) and revenue (RDEL) budgets. It was hoped that by making money allocated to productivity enhancing investment (capital) visible, departments would be incentivised to take a long-term approach. However, as budgets tightened after the financial crisis, departments shifted capital budgets into plugging day-to-day operating costs. Despite technical ‘rules’ discouraging this kind of swapping, short-term reactive spending was prioritised over long-term investment.

For instance, in an effort to sure-up the NHS budget, the Department of Health and Social Care transferred £4.3 billion from the capital budget to the revenue pot between 2014-5 and 2018-19. Though that move warranted a slap on the wrist from the Public Accounts Committee, there is little to genuinely stop governments from shifting spending to meet short-term need. It’s not clear how adding another category of spending into the mix overcomes this fundamental problem.

Dealing with our prevention predicament is an existential public services challenge, and its great to see a lively debate on how we can begin to transform our approach. Unfortunately, it will take more than accounting fixes to build a smarter state.