When Jeremy Hunt, the UK Chancellor, stands up in Parliament on Thursday, he has two jobs to do. Unlike many of his peers in other countries, he is both the Minister of Finance and, in effect, Minister for Economic Growth. Tony Blair thought about carving the two roles apart in the run-up to the 2005 election when he was Prime Minister, but that never happened.
As the UK struggles with flat-lining productivity growth in both public and private sectors, there is a deep link between the two roles. How can you tell what’s a ‘best buy’ – as Chancellor, business, or consumer? It’s a deceptively simple question, but one that has radical implications.
Let’s start with the Chancellor’s job as finance minister, as he wrestles with what to cut, save, or expand…
Figuring out ‘what works’…
The call for a more ‘efficient’ government has been a familiar refrain in the last few weeks. It’s hard to disagree with the dictionary definition of “achieving maximum productivity with minimum wasted effort or expense”. The problem is that we do not know what or where this wasted effort is, because we have historically spent very little time trying to find out: in 2021 just 8% of new government programmes had even basic evaluation in place.
To its credit, the current government has gradually grown the network of ‘What Works’ Centres. A good example is the Educational Endowment Foundation (EEF) that collates the evidence and keeps schools up to date about the most effective practices to boost student achievement. The EEF has also become a world leader in the generation of evidence, having conducted well over 200 RCTs, with more than 20,000 schools and around 2 million children having taken part.
The Treasury should give Departments settlements that are conditional on getting evidence in place – with automatic cuts of 25% to programme budgets that fail to deliver evaluations within 18 months.
But evidence generation remains a minority sport. Successive generations of Treasury Spending Review teams bemoan the lack of evidence available to help guide judgements. Like so many forms of investment, the best time to have driven such evidence and evaluation would have been in previous SRs. But the second best time is now.
The Treasury did set up an important new team last year to drive this agenda: the Evaluation Task Force. This time around it should go further (an argument I rehearsed recently at the Institute for Government). It should set ambitious targets for the proportion of programmes evaluated (or, at least, evaluate variations within the programme, so that resources can shift to the more effective iterations).
Departments will look to see evidence that the Treasury is serious. The Treasury should respond by giving Departments settlements that are conditional on getting such evidence in place – with automatic cuts of 25% to programme budgets that fail to deliver plausible evaluations within 18 months.
Furthermore, to make sure that those evaluations are delivered, they should be integrated into the Office for Budget Responsibility (OBR)’s regular list of programme costs. The Chancellor should instruct the OBR to include whether programmes have evaluations in place, and links to the evaluations, so that an army of engaged citizens can pour over them.
It has been done before. For example, Treasury and Cabinet Office Ministers (such as former Minister Ben Gummer) sceptical of the controversial ‘Troubled Families’ programme refused to give it more money without a robust evaluation in place. The government economist Stephen Aldridge, took two years to assemble the data. But when it came through, the evaluation showed the programme was highly cost effective, and the programme was continued.
To do this at scale would be a game changer. In Australia, the Treasury Minister (and advocate for experimentation in government) Andrew Leigh is working to make it happen. Jeremy Hunt should seek to get there first. It would bend a trillion pounds of spend towards better outcomes and higher productivity.
Helping consumers and businesses to spot ‘best buys’ is also an underused lever to drive economic growth…
The Chancellor’s other job – boosting economic growth – can also be helped by helping consumers and businesses identify better value.
Consumer markets have changed radically in the past 20 years. The price of multiple goods can be seen at the click of a button, and three-quarters of UK consumers now consult product reviews before making a purchase. Such markets may be far from perfect but they do broadly work: many consumer products have fallen in price over recent decades, even as quality has improved.
However, other critical markets have yet to achieve this level of transparency. Just 17% of legal services publish their prices online, a figure that is not out of step with other professional services. Information on quality, such as the experiences of previous customers, can be even harder to find.
These shrouded markets hamper growth. 28% of SMEs could benefit from professional advice, but factors such as a lack of trust in the support available and uncertainty over its benefits or costs, mean they do not buy it. When they do access support it is of variable quality, something that better feedback and competition would help to fix.
Even bigger gains are likely in labour markets, given their importance and reach. Characterising your immediate supervisor as a ‘partner’ rather than a ‘boss’ is associated with an uplift in life satisfaction equivalent to a 30% increase in pay, yet it is often impossible to determine these quality indicators prior to taking a role.
The UK was a pioneer of Open Banking, which allows customers to access and share their own financial data to (amongst other things) find the best deals for them and facilitate switching. Half of small businesses and 4 million consumers now use services that depend on it. The government should now focus on de-shrouding other markets. Requirements to publish prices for representative services would be a start. But they could also use their data to kick-start this process, for example by using HMRC data to shed light on salaries, pay progression and job retention.
Conclusion
The UK, and countries like it, desperately need to boost their productivity growth in both public and private sectors. Raising interest rates and undifferentiated cuts are a pretty crude way to get there. Higher interest rates are the economic equivalent of crude chemotherapy: poisoning the (economic) body so that weaker companies will fail, hopefully releasing capital and labour to transfer to more productive companies and activities.
A much smarter approach is to address the widespread market and public service failures so that consumers, businesses and governments can better tell the difference between good and bad. Everyone wants a ‘best buy’, especially a Chancellor. But first you’ve got to figure out which they are.
