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We need a radical change in the government’s spending priorities which reflects how the money spent actually improves people’s lives, according to a new report by LSE researchers led by Professor Lord Layard.
Value for Money is inspired by Sir Keir Starmer’s promise, made when he was leader of the opposition, that “with every pound spent on your behalf, we would expect the Treasury to weigh not just its effect on national income but also its effect on wellbeing.” This report shows how to apply the wellbeing approach, and its implications for the coming three-year Spending Review.
It argues that:
- Public money should be spent on those policies which produce the most wellbeing.
- The best policies are those which produce the most wellbeing for each pound they cost the government.
- This should be the approach in the Spending Review. If followed, it would produce major improvements in national wellbeing and would set an example to governments worldwide.
The report indicates the need for major changes in priorities. The top priority for more public spending in terms of wellbeing benefit is calculated to be psychological therapy for adults and children with mental health problems – including a new service for addicts. Such services provide massive benefits to patients and their families. And they cost the government nothing overall, because their cost is more than covered by the additional taxes (and reduced income support) paid by people who are helped back into work.
However most policies do cost the government money. For them the test is how large are wellbeing benefits (in terms of their money equivalent) relative to their cost to the government? In other words, how much benefit do they provide to the community for each pound they cost the government?
The report shows that some policies yield very high benefits per pound. For example, apprenticeships yield benefits worth 14 times more than what they cost the government. This suggests that qualified applicants for apprenticeships should be guaranteed a place. Similarly, more police officers would produce benefits through reduced crime that are worth over 10 times their cost in terms of their impact on people’s wellbeing.
Since money is short, the authors also look for policies which are less cost-effective. For example, the average road scheme only produces benefits worth 3 times the cost and the proposed Lower Thames Crossing has benefits of only 1.5 times the cost.
These, and many other findings, imply the need for major reallocations of money in the Spending Review, both between departments and within them.
Lord Layard said: “Rational government means spending our money to ensure the most wellbeing and the least possible misery. We now have the science to estimate benefit/cost ratios for most policies, and these should be the basis of the next Spending Review.
“Previous analysis by CEP’s wellbeing researchers has been reflected in major revisions to the Treasury’s Green Book, which spells out how departments should make their case in the Spending Review. The need now is to have the Green Book applied.”
Lord Gus O’Donnell, former cabinet secretary, said: “This is an exceptionally important report. It should lead to major improvements in how the government uses our money to improve lives.”
The full report is available here: Value for Money: How to Improve Wellbeing and Reduce Misery
The report will be launched by Lord Layard on Tuesday 3 September at the Institute for Government. Speakers at the event will include Lord O’Donnell and Amanda Rowlett, former chief economist at the Department for Transport, Department for Business, Innovation and Skills, and Department for Work and Pensions.
Details of the event are available at: https://www.instituteforgovernment.org.uk/event/public-spending-improving-wellbeing.