The new UK Chancellor of the Exchequer, like his predecessors, will confront intense pressures for additional public spending while remaining within the constraints of fiscal discipline. Yet the live debate about “headroom” under the current rules is far too narrow. The real challenge is how government plans, allocates and controls public money to improve performance across public services amid economic shocks and rising demand.
This question is especially salient for the new Burnham Government’s ambitions on economic growth, public service reform, and devolution. As responsibilities are increasingly shared across combined authorities, local government, and a wider set of delivery partners, the issue is not simply how much money is available. It is whether the UK’s existing approach to public spending is fit for purpose in a more decentralised state or whether it requires fundamental reform to support effective decision making, clearer accountability, and better outcomes.
We explore this theme in our five years of research and more than 150 interviews across Whitehall, local government, and frontline services for a Nuffield Foundation-funded project. Our book, The Myth of Treasury Control: Public Spending in an Incoherent State, and accompanying report, describe this fundamental challenge of public expenditure governance. The UK’s highly centralised institutions of spending control no longer match the fragmented, multi level systems through which public services are actually delivered. This mismatch sits at the heart of the government’s difficulties in improving policy outcomes, investing strategically for the long term, and achieving value for money.
As we summarise it in the report, “The long-standing model of ‘top-down’ and centralised Treasury control over public spending has inadequately adapted to the realities of modern governance and public service delivery.” This mismatch is a structural barrier to improving outcomes for citizens and providing stewardship to public services. The new government will need to address this if it is to avoid the same fiscal trap as its predecessors.
A paradox at the heart of Treasury control
The evidence from our interviews revealed a striking paradox: the Treasury simultaneously over controls some aspects of spending while under controlling others. Both dynamics undermine effective financial management.
In politically salient or easily measurable policy domains, departments experience intensive scrutiny, tight approvals, and limited flexibility. As one former senior official described, the Ministry of Justice became consumed by “daily battles” with the centre over budgets, leaving little space for strategic planning. The report notes that this period “reduced the capacity of departmental leaders to engage in longer-term planning… [and] operational concerns became detached from strategic financial management.”
Yet our case-studies for the project, drawn from complex, demand led policy areas – prisons, special educational needs (SEND) and homelessness – revealed whole areas where Treasury understanding of how money was spent and managed was strikingly limited. Costs build gradually, delivery pressures intensify, and crises emerge before meaningful intervention occurs. Interviewees repeatedly told us that the centre often acts only “when the wheels have fallen off”.
This inconsistency is not simply a matter of capacity. It reflects a system designed for a different era, one in which public services were delivered through departmental hierarchies rather than today’s ‘contractual state’ of sprawling networks of agencies, local authorities, private providers, and voluntary organisations.
Short-termism is baked into the system
The UK’s spending framework always prioritises short-term cost control over long-term public value. Annual budgeting cycles, rigid fiscal rules, and political incentives all push decision-makers toward rushed initiatives and a focus on immediate savings rather than strategic investment.
The consequences are visible across the public sector: under capitalised hospitals, crumbling prisons and schools, rising temporary accommodation costs, and SEND deficits that accumulated over years of under investment and unrealistic settlements. As the report states, “funding gaps widen gradually… systems drift into crisis before significant intervention occurs”.
Short-termism is not a failure of individual departments. It is the result of institutional design.
Fragmented governance makes coordination harder
The UK’s governance landscape has become increasingly fragmented over the past three decades. The managerial-inspired New Public Management reforms, in setting targets, dispersed responsibility across multiple organisations, while the centralising instincts of the UK’s Westminster-centric governance model remained intact.
This means that departments, agencies, and local authorities often protect their own budgets rather than collaborate towards collective outcomes. Cost shunting between departments and across levels of governance is common. Preventative services are squeezed. Cross government working remains difficult because the dominant accountability system rewards siloed behaviour.
This fragmentation is not merely administrative; it shapes how public money is used, how risks are managed, and how decisions are justified. In the absence of consistent strategic co-ordination, service outcomes are worse.
Evidence can inform policy but is rarely used
Despite decades of investment in evidence informed policymaking, the system does not consistently support learning from experience or strategic decision-making. Appraisal and evaluation frameworks are often determined by political priorities, institutional incentives, and the need to comply with Treasury rules.
Interviewees described business cases that were technically rigorous but disconnected from operational realities. Others noted that novel political initiatives were sometimes pushed through “without adequate challenge”, despite formal requirements for Treasury approval.
The problem is not a lack of evidence or expertise. It is an inadequate institutional alignment between the use of evidence, learning from experience, and strategic priorities.
Accountability has become blurred
As responsibility for delivering public services has dispersed, accountability has become harder to trace. Citizens often do not know who is responsible for outcomes. Departments struggle to manage risks that sit outside their organisational boundaries. Local authorities carry liabilities, such as SEND deficits and temporary accommodation costs, that originate in decisions made elsewhere. Distrust and blame-shifting are prevalent.
The result is that that accountability for public money has become increasingly fragmented and confused. Without clearer lines of responsibility, neither spending control nor service improvement can be consistently achieved.
An incoherent system in need of fundamental rebalancing
Given the scale of the challenges, we concluded from our research that incremental adjustments to Treasury and departmental processes cannot resolve these structural problems. The UK needs a spending system that reflects how public services are actually delivered.
Our report recommends:
- Meaningful devolution of power, with clear responsibilities and accountability at regional and local levels.
- A new funding and accountability framework that supports long-term decision-making and strengthens accountability to citizens.
- A reset of central–local relations, based on trust, cooperation and co-design.
- Simplified governance arrangements to reduce institutional complexity.
- Constitutional protection for local government, providing stability for decentralisation.
- Structural reform of HM Treasury: separating the Treasury’s public spending functions from its macro economic responsibilities. The UK is an international outlier in combining macro economic policy, public spending control, and financial services regulation within a single department. These functions should be split, with the Treasury retaining responsibility for economic policy and setting the ‘envelope’ of total managed expenditure in a new department created to oversee the planning, allocation, and oversight of budgets and departmental performance.
These reforms would modernise spending control and strengthen the strategic management of public money, improving the effectiveness and resilience of public services.
Our work provides the evidential foundation for the Burnham Government’s stated ambition to reshape politics and public spending. But delivering meaningful change will require sustained political capital and consistent follow through.
Without wholesale reform, the same structural weaknesses that constrained previous governments will continue to undermine efforts to build a more devolved state and to tackle the UK’s long term economic and public service challenges.
The views and opinions expressed in this article are those of the authors and not necessarily those of the Nuffield Foundation.
Cover image credit: Jonathan McHugh
