How can the new Government ensure value for money?

A new Labour Government has set out ambitious plans to drive up value for money given the tight fiscal context they face with limited appetite to increase taxation. In this piece, we will consider the concept of value for money and how an “Office for Value for Money” might be most effective.  

Defining value for money

“Value for money” is often used in political discourse without being commonly defined or understood. This is due to the underlying issue that “value” is relative to the political ambitions of the Government of the day, with “value for money” being the relative cost of delivering this desired value against other public services or the wider economy. This is often best explained through an analogy; if the Government of the day believes that everyone should have a purple hat, value for money would be ensuring that the unit cost of each hat is the lowest possible rather than questioning whether purple hats are an appropriate policy for the UK Government. In this case, officials advise politicians on the merits of buying everyone purple hats and showing them potentially more cost-effective solutions to deliver the same or similar outcomes (eg buying everyone a red umbrella instead!).  

Understanding the relative nature of “value” in value for money explains why there are a myriad of definitions and why the Government uses different meanings in different contexts. The business cases and justification for all the current transformation projects across the Government will still be based on the previous Government’s perception of value, and these projects will need to define their value and, therefore, value for money in the new political context after the election. To support the government with this change and given the limited budgets available for the new Chancellor to invest in their stated missions, value for money should be clear in defining the desired outcomes for each mission, enabling options to be evaluated against the same aims. This would enable decision-makers to compare options for delivering the same desired outcomes (ie “apples to apples”) and level the playing field.  

In creating these standard definitions of value for money, the measures should assess how well the service meets its purpose. One of Baringa’s key messages from our productivity campaign has been that “what is measured matters,” so ensuring these value-for-money metrics drive the right citizen outcomes while monitoring relative cost will be key. To develop these measures, it will be key to empower operational leaders to explain their operating context and how this is driven by external factors and develop these common outcomes by which value for money can be evaluated and ensure public services can be aligned to delivering this common purpose. In this article by our expert Robyn Turl, we’ve explored how the public sector can deliver purpose-led performance. 

Creating and implementing these definitions will take time and require effort to agree on the right metrics across delivery teams, finance teams, and the central teams, which will oversee delivery (eg HM Treasury’s spending teams). This effort to agree on definitions may feel frustrating in the short term for political leaders, but it allows the front line to explain operating realities and work in a common framework before making hasty commitments which are announced, fail to be delivered and prevent the delivery of long-term outcomes.  

Embedding a culture of value for money

Rachel Reeves has also set out plans to change the structures in Government to drive value for money through the creation of a new “Office for Value for Money” as a “hit squad” to crack down on the £28.6bn of waste identified by the National Audit Office (NAO). In practice, this approach is hard to argue with, as everyone wants to ensure money is spent well, but it must avoid focusing solely on short-term savings, which in turn are undermined by an increase in spending over a full parliamentary term. Short-sightedness can increase cost over time by treating the symptoms rather than the cause of "wasteful" spending.  Labour has not published further details of this approach in their manifesto. However, if they still intend to proceed with this idea, Baringa would wish to share the following points of consideration.  

1. Tracking benefits

We believe there is an opportunity to go further rather than acting as another watchdog slowing down a delivery at the point of delivery – HM Treasury is already effective at this and arguably adds limited value to ensuring good spending outcomes as assessed regularly by the NAO and PAC. An excellent first step would be ensuring the delivery of benefits agreed upon in business cases; HM Treasury currently fails to effectively track whether the desired benefits funded through spending reviews are realised. Often the original benefit commitments are later watered down or rescoped over the delivery of projects while costs rise (eg HS2 as the most obvious example in recent years). In the context of a mission-led government, this will become easier as there should be a clear link to the desired outcomes through common definitions of value for money for each mission.  

2. Changing funding models

Additionally, instead of focusing on the inputs of spending, a more effective approach could be to look at a broader change in funding models for public services, with “bedrock” funding for Mission outcomes agreed with Ministers over a longer time horizon. Shifting the approach would allow for the testing of opportunities, embracing an “agile” approach to scale up the best and most proven approaches. This will drive up value for money in the agreed definitions and deliver the desired outcomes. Baringa explores this more in this article by Graeme Swan.  

3. Better evaluation

More evaluation is another way to drive better value for money. The government, like the private sector, cannot fully predict the future and needs the ability to experiment, fail fast and scale up what works through a rich data and evidence-driven approach. In recent years, the mission of the Evaluation Task Force (a joint Cabinet Office and HM Treasury team), has begun to embed evaluation throughout the lifecycle of a project’s delivery but this needs to continue with key guidance such as the Magenta Book becoming as core a document as the HM Treasury’s Green Book to the delivery of public service. Additionally, the Office of Value for Money’s hit squad should look beyond the current advisory role of the evaluation task force by being empowered to make recommendations to the Chancellor to cancel projects or programmes that cannot demonstrate the benefits the spending is delivering.  

4. Sharing best practices

The centre of government (Cabinet Office and HM Treasury) also has the role of enabling teams to get it right the first time by sharing what has worked in other areas. The Office for Value for Money could and should act as the corporate memory for the entire system of Government by building on the work of the Government functions. Their cross-cutting view should provide insight and examples of what has worked to drive the best value for money in these commonly agreed definitions and look for opportunities to share this across the system. This approach would deliver Rachel Reeves's ambitions of preventing wasteful spending before the NAO or PAC reviews the projects and help connect the dots in a fragmented system of government, which can always benefit from the lessons learnt from other programmes but requires the team to build strong relationships, manage knowledge well, and avoid the tendency to pass swift judgement rather than develop capability.  

Baringa is on hand to support clients through the common period as they realign their business cases and transformation programmes to Labour’s mission-led government. If you would like to speak more to our experts, contact Matt Jones, Hannah Klein, or Theo Whitaker.