ICAEW’s recent submission to HM Treasury ahead of the Spending Review 2025 starts by welcoming the introduction of three-year spending reviews updated every other year and the introduction of four-year capital budgets. These are positive improvements that should help improve how public spending is managed going forward at a time when every pound is critical.

ICAEW Director of Public Sector and Taxation, Alison Ring, says: “Four-year capital budgets in the Spending Review will provide forward-funding certainty that public sector capital programmes need if they are to be delivered more effectively and at a lower cost.” 

She adds: “One test of the Review will be whether the government is able to take advantage of planning reform to accelerate the delivery of public infrastructure projects such as East West Rail. Bringing forward the economic benefits of this and other infrastructure will be critical to the government’s ability to meet its ambitions for stronger economic growth.”

Key principles needed

The submission sets out principles ICAEW believes should be adopted within the Spending Review covering the 2026/27, 2027/28 and 2028/29 financial years, and 2029/30 for capital investment. These include:

• providing clarity on the government’s wider strategic priorities beyond the government’s five missions,
• a digital-first approach to delivering public services,
• upfront investment to deliver sustainable efficiency improvements,
• core capital investment programmes to provide funding certainty,
• local government funding reform, and
• making prevention a genuine priority.

Ring continues: “A key challenge for the Spending Review will be how the government can reduce public spending to stay within the fiscal rules, while at the same time delivering better quality public services. We believe a digital-first approach together with upfront investment in transformation will be essential in squaring these two objectives.”

Local government funding

On local government, ICAEW says that separate funding streams for local public services, such as adult social care, would enable regional sharing of welfare costs. It would provide residents with greater transparency on how their council tax is being spent

ICAEW also makes specific suggestions for:

• planning reform to be leveraged to accelerate the time it takes to build major infrastructure projects such as East West Rail,
• more sustainable financial models for subsidy-reliant public services,
• the need for higher level apprenticeships to develop the skills the UK needs, and
• investment in HMRC processes and responsiveness to unlock growth.

Effective financial management is key to delivering savings and maximising growth, starting with a clear line of sight between spending reviews, annual budgets, parliamentary funding, in-year performance monitoring and annual financial reports.

Ring says: “Reforms to the way key public services such as adult social care are funded would give council taxpayers more transparency about how money is spent and enable a more equitable sharing of money across regions, and we urge the government to make these changes.

“Rising demand for social care, homelessness support and special educational needs are putting significant pressure on council budgets and, in many areas, there is a stark mismatch between resources and demand. Successive governments have pushed reform of local government funding in England into the long grass for too long and these changes are long overdue.”

ICAEW also calls for increased levels of delegated authority to encourage innovation and ownership of outcomes, and for an end to the huge volatility in public sector capital expenditure in and between financial years. A portfolio approach to managing overruns and underspends would also help on capital projects, while enhancing fraud prevention and detection capabilities is also important.