Anne-Marie Trevelyan was Minister for Defence Procurement 2019-20 and Minister for the Indo-Pacific 2022-24.
Every new Government Minister discovers that their department officials don’t like to discuss money – the civil service really believes that a Minister is there to rubber-stamp policy and a budget for them to then spend unmonitored in the months and years to come. When I turned up as Secretary of State at the Department for International Development in 2020, I was shocked to discover that asking for a breakdown of all projects in flight was a difficult question, and that the answer was not available. It took them 3 weeks to pull together a comprehensive summary with project values and spend left to go on each of the 993 projects in the system.
The hardest aspect of governing is getting to grips with the money flows, because ministers are not encouraged to offer alternatives to the status quo of doling out taxpayers’ money – however inefficiently, wastefully or indeed in contradiction to clear political direction that may be happening.
This status quo, easy to explain to bond market traders and the Bank of England, means the Treasury simply has two buckets of cash to give (in a controlled way) to departments – Capital Departmental Expenditure Limits (CDEL) and Resource Departmental Expenditure Limits (RDEL). This model offers easy accountability and control over spending. However, in an era defined by digital transformation, artificial intelligence, productivity challenges and increasing pressure on public services, this system is flawed – it discourages (and often refuses to allow) investment that requires revenue expenditure today to generate substantial future savings and improved outcomes.
With debt levels climbing unsustainably, it has never been more urgent for the Treasury to shake itself down and drive transformation. Like everything in life, you must invest for change.
So how might they do this? I believe we need a third category of government spending: IDEL – Investment Expenditure – to operate as an internal loan mechanism that rewards modernisation and enables departments to finance transformational programmes whose benefits accrue over many years and pay it back through the first wave of savings. This would require financial management and real departmental cash responsibility, rather than the emasculating mindset which allocates budgets at the start of the year and then micromanages them endlessly.
Right now, spending is either capital or resource. Capital expenditure creates or enhances assets – this goes on the balance sheet. Resource expenditure covers the day-to-day costs of running the department – wages, bills, consumables – these are P&L costs. Whilst logical in accounting terms, this distinction creates counter-productive behavioural consequences. Modern transformation programmes are often not about buildings or physical assets. They involve software, process redesign, workforce retraining, cyber security improvements, cloud migration, data platforms and organisational change. Much of this expenditure sits firmly within RDEL, of which there is never enough.
The result is a paradox. Departments may identify programmes capable of delivering significant efficiency savings over five or ten years but be unable to afford the upfront resource expenditure required to realise them. Ministers and accounting officers are often forced to prioritise immediate operational pressures over longer-term transformation because RDEL budgets are already constrained. As a result, government gets trapped in the cycle of maintaining legacy systems and processes because modernisation requires short-term spending that current budgeting structures disincentivise.
No private sector business would survive this model. Transformation is not funded from its annual operating budgets, but by investing against future returns. Businesses routinely borrow to modernise systems, automate processes or improve productivity because they recognise that future efficiencies justify present expenditure. So, let’s get our public sector doing the same – after all, it’s our money, so why are we tolerating such a poor system?
An IDEL funding stream would create a structured mechanism for departments to modernise while repaying it from future savings. This would operate like a loan. Departments would agree a repayment profile linked to realised savings over an agreed period. Once savings materialise, a proportion would be returned to the central “investment fund”, creating a revolving source of capital for future modernisation projects across government.
The taxpayer would get financial discipline and incentivisation for innovation. This small shift could fundamentally alter decision-making behaviours across Whitehall.
That looks like better decision-making for better outcomes – for the taxpayer. Tackling the long-standing productivity challenge to deliver more with finite resources. Using digital transformation to reduce administrative burdens and improve service delivery. Allowing our public sector workforces to drive the innovation they know could radically improve their workplace and outputs for taxpayers.
The discipline of private-sector investment appraisal with the accountability standards expected in public finance. I fear it will never catch on.