Securing success: A practical guide to SR25 and beyond

In July of this year, the Chancellor published the outcome of her public spending audit. This highlighted a challenging economic inheritance left behind by the previous government, including a series of unfunded commitments and a £22 billion in-year deficit in the public finances.  

To reinforce a new direction emphasising value for money, several efficiency measures have been introduced - reviewing lower-value capital programmes, taking immediate action to correct inherited inefficiencies totalling £5.5 billion in immediate savings, and making reforms to the spending framework to prevent this from happening again. 

The Treasury has committed to holding a one-year spending review this autumn, followed by a three-year spending review (SR) every two years. The first of these multi-year spending reviews (SR25) will conclude in the spring of next year and set departmental funding for the coming parliament.  

SR25 will likely feel different for departments, as the first spending review focused on the Labour Government’s priority set of missions. Ambitious targets like these will require a substantial reorientation of government activity, including a likely shift away from previously funded programmes. This will contrast with a series of short, sharp (and often ring-fenced) SRs responding to Brexit, the pandemic, the energy crisis, and war in Ukraine. While departments have expected an Autumn SR for several months, they must now prepare a compelling evidence base that puts the focus on medium- (not short-) term ambition and do so rapidly.  

Demonstrable value for money against the new government's desired outcomes will be critical to securing funding, but harder than ever in this context. The overall level of public spending as a percentage of GDP has been increasing for the past five years, with areas like the NHS receiving sustained funding increases and higher public sector borrowing costs. However, departments will continue to face pressure on demand for services and on key costs such as increased public sector pay. Against this backdrop, there are four key steps that we think departments should take now to secure success in the upcoming SR. 

1. Engage with your strategic context, to win political endorsement for your ambition 

Determining the scope of a spending review is a highly strategic decision that will inevitably involve material trade-offs. Winning political endorsement at as early a stage as possible is therefore crucial. To do so, we recommend a twin-track approach, first highlighting how bids will: 

• Invest to save. Focus on how projects will generate cash savings or income at the same time as maintaining or improving public services. This should be grounded against a clearly defined problem statement related to the strategic responsibilities of your organisation. 

• Deliver the five missions. Focus not only on the contributions that your projects will make towards the government’s missions but the principles you will adopt in delivering these missions over the course of the spending cycle. The new government have already outlined several principles that we believe will be integral to successful spending review bids, including public-private partnerships, progressing devolution and prioritising prevention.  

• Realise benefits. Focus on how you will use robust evaluation to support an iterative approach to drive continuous improvement, and crucially to achieve value for money. Strong focus has been placed on improving the capacity for and quality of evaluation across government in recent years, including the heavy involvement of the Evaluation Taskforce in SR21. This trend is likely to continue for SR25 and beyond. 

Second, gaining momentum is key for areas to secure funding, including from the Secretary of State and decision-makers in the Treasury as early as possible in the process. Given the complexity of planning and delivering an SR, awareness of potential departmental bids allows spending teams to plan their response and avoids the Treasury being surprised by a proposal at the point of negotiation (with little room to negotiate). Support from departmental Chief Economists will add weight to capital investment projects through the SR processes to review business cases.  

2. Understand your impact pathways, and how policy levers deliver against this ambition 

Once the challenges to address in SR25 have been identified, departments must be able to clearly evidence how policy levers will move the dial. 

This is no simple task. Departments (and the directorates within them) will often have a set of strategic objectives that provide a clear view of their target outcomes. However, these tend to be function-focused, rather than built around a mission or end-to-end user journey. This can cause a natural tension with the strategic objectives of other directorates within a given department, let alone across government. It also means that there is frequently a limited ability to demonstrate control over how these outcomes and the associated benefits will be realised.  

SR25 requires integrated thinking. The biggest challenges facing government – including climate change, regional inequality, economic growth and population health – do not fit neatly into departmental boundaries. This means moving beyond a view of how policies, programmes and projects deliver ‘direct’ benefits within a single departmental remit. Getting rapid clarity on the levers that can be pulled to achieve target outcomes is vital. Doing so requires developing a vision that can cohere activity across directorates, across government, and – where relevant – with innovative industry partners and the third sector. This vision must enable all interested parties to speak with a single voice to co-design transformation. And it must create the foundations to articulate impact pathways that demonstrate how policy levers relate to outcomes and therefore benefits.  

3. Fill gaps in your evidence base, focusing on holistic and cross-cutting benefits 

A compelling ambition is not enough alone to secure funding. The Treasury (and indeed Cabinet Office Evaluation Taskforce) will focus on the extent to which robust evidence has informed decision-making. 

For bids to be competitive, they must therefore bring together a holistic view of how value is delivered through the direct value chain, to the broader economy, and to the environment and wider society.  In practice, those crafting SR cases must consider a ‘collective imagination’ which can build upon and challenge the typically narrow view of benefits associated with a singular departmental perspective. This will involve knowing the stakeholder groups and their primary interests in the given policy, programme or project; careful navigation of any trade-offs associated with those primary interests, and articulation of how these trade-offs have been balanced. Creating the evidence base itself will then involve a broad range of analytical techniques – including input-output modelling, econometric analysis and customer research. In doing so, the best SR bids are underpinned by an evidence base that represents a single source of truth of primary, secondary and tertiary benefits ‘owned’ across government. 

4. Put practical structures in place, to support a mission-led approach. 

While a mission-led Labour Government aims to ensure departments are working together to drive change and using the SR process to improve how different tiers of government work together, the current processes don’t encourage cross-Department collaboration. Without appropriate governance, there is a risk that the steps outlined above cannot be achieved, and therefore that funding for policies, programmes and projects continues to be allocated in a piecemeal way, rather than a way that is based on cross-government strategic objectives. 

Direction must come from the top. We know that success is only possible when Senior Civil Servants set the right tone. This must include rapidly putting practical structures in place to enable protected data sharing. Without doing so, there will be limited means by which to identify, deliver and monitor progress on the benefits associated with policies, programmes and projects put forward for SR, particularly for those which are jointly owned.  

Get in touch 

To find out how Baringa could help your organisation prepare for the upcoming spending review, please contact our experts Matt Jones, Tilly Thomas or Theo Whitaker.