Allocating Public Spending Efficiently: Is There a Need for a Better Mechanism to Inform Decisions in the UK and Elsewhere?

Our new paper explores the evidence currently being used to allocate budgets between public sector activities in the UK and its limitations. We argue that there is much that can and should be done to improve the evidence base to inform the allocation of public sector budgets across portfolios. We propose a pragmatic approach to measure and value disparate public sector outputs in a commensurate manner.

Our new paper, Allocating public spending efficiently: is there a need for a better mechanism to inform decisions in the UK and elsewhere? explores the evidence currently being used to allocate budgets between public sector activities in the UK and its limitations. We argue that there is much that can – and should – be done to improve the evidence base to inform the allocation of public sector budgets across portfolios. We propose a pragmatic approach to measure and value disparate public sector outputs in a commensurate manner.

One of the remarkable achievements of health economics as a sub-discipline of economics has been the widespread international use of evidence on the cost effectiveness of new technologies in the health care sector, via Health Technology Appraisal. The considerable efforts made to ensure that new technologies are effective and good value for money – explicitly recognising the opportunity cost of these decisions – helps to ensure health care budgets are used in ways that maximise benefits to patients and society from the health service budget.

These efforts stand in stark contrast to the way in which the total budgets for health care are decided, and how taxpayer spending is allocated between the health care sector and other areas of public sector activity.  In the UK (as in many other countries around the world), few – if any – formal processes explicitly address comparisons of value for money between spending across different government departments, despite the existence of mechanisms that could – in principle – achieve that. This leaves a very important gap in evidence and means that decisions about public spending allocations are likely to miss opportunities to improve the health and wellbeing of society from existing budgets.

In our new paper, we argue that the development of methods and evidence to better inform the allocation of public sector spending between departments is urgently needed. We identify a number of possible approaches to this – some of which are being used in different countries – and highlight their strengths and weaknesses.

We propose a new, pragmatic approach that incorporates a generic descriptive system to measure the disparate outcomes produced by public sector activities in a commensurate manner. Discrete choice experiments could be used to generate evidence of the relative importance placed on these different aspects of public sector outcomes by members of the general public. The proposed approach could be used to produce evidence on the relative effectiveness of different public sector activities in improving outcomes, and evidence on the relative value of these outcomes that would facilitate comparisons of value for money across government departments.  An advantage of adopting such an approach is its ability to go beyond a sector-specific focus to evaluate options that generate disparate outcomes spanning multiple sectors, the importance of which has been amply demonstrated by COVID-19 and measures to contain the pandemic.

The lack of progress toward improving the evidence base for public sector spending is worrying, given how much is at stake in these decisions. Greater public good could potentially be achieved from existing budgets just by reallocating those budgets toward those public sector activities with higher value to society.  We recognise that government budget allocation decisions will correctly remain a political decision, which will necessarily reflect a variety of considerations and judgements that will go beyond even the broad set of outcomes that would form the basis of our proposed approach: even when developed fully, it would be a decision aid to inform and illuminate a complex process. However, we would contend that the efficiency of public spending could be significantly improved, and the transparency of political choices improved by the availability of a comparative evidence base.

Acknowledgement: Part of this work was funded by the Association of British Pharmaceutical Industry as a research grant.

Citation

Cubi-Molla, P., Buxton, M. & Devlin, N. Allocating Public Spending Efficiently: Is There a Need for a Better Mechanism to Inform Decisions in the UK and Elsewhere? Applied Health Economics & Health Policy (2021). https://doi.org/10.1007/s40258-021-00648-2.