IoD press release Increasing public sector productivity must be government’s top priority for the Spending Review

In its Spending Review submission, the IoD has called for a consistent, coherent growth-focussed approach to the use of government funds.

On the Government’s fiscal rules, the IoD states:

• The updates to the fiscal rules announced at the October 2024 Budget will contribute to better stability of the public finances and, therefore, of public sector spending – it is right to treat the funding of capital spending that secures future growth differently to other forms of spending.
• However, with the government’s limited fiscal space, there is a heightened risk that quite small changes in tax receipts will lead to a breach in these fiscal rules, necessitating either tax changes or spending cuts where borrowing has reached its limits.
• The IoD is calling for the government to target a higher minimum level of headroom for the current budget fiscal rule of 0.8% of GDP – in line with the long run average.

On public sector capital investment:

• Investment in infrastructure delivers a double-benefit to the economy – growth benefits in the near-term via the direct contribution of the infrastructure delivery supply chain, and then through greater supply-side capacity in the economy and crowding-in effects.
• The role of the National Infrastructure and Service Transformation Authority (NISTA) will be crucial for driving a long-term transparent project pipeline.
• The IoD is calling for NISTA’s institutional budget to be protected, giving it the confidence to invest in its own effectiveness; and for a clear framework to guide the selection and delivery of its infrastructure priorities, reinforcing its role in anchoring private sector expectations and supporting planning.
• Furthermore, a higher minimum level of headroom should be targeted for the capital investment budget, further protecting it from economic volatility

On public sector productivity:

• The weakness of public sector productivity is dragging down the economy as a whole and must be urgently addressed.
• The IoD is calling for the Office for Value for Money (OVM) to be made permanent; clarity on its operating relationship with pre-existing efforts and organisations across government; and, clear operational objectives and success metrics, enabling its effectiveness to be tracked.

Commenting on the publication of the IoD’s Spending Review submission, Chief Economist Anna Leach said:

“As we approach the Spending Review, the UK economy is battling multiple headwinds to growth. And we’re now close to the OBR’s next economic update, which seems likely to require the government to find more money to ensure the stability of the public finances. The government left itself so little wriggle room against the fiscal rule in October, that adherence to the rules now risks engendering further damaging instability in the economy.

“We’re calling on the government to adopt a supplementary rule at the beginning of each Spending Review cycle, which targets a higher margin of fiscal space, to ensure that both the public and private sectors can have greater confidence that small changes in economic performance do not require tax or spending changes.

“Our members have been clear that the most important consideration for the forthcoming Spending Review is public sector productivity and efficiency. Recent data from the ONS has further highlighted how much productivity has been lost from the public sector since the pandemic. Without significant improvement, the Budget transfer of resources from the private to public sector will only serve to undermine the economy and the public finances further.

“To ensure that the Office for Value for Money is effective, we’re calling for it to be made permanent and for its relationship with pre-existing efficiency initiatives to be clarified.

“The government is right to focus on driving up investment in the UK. And protecting their own spending in this area is crucial – both for its own contribution to the UK’s infrastructure, but also in its role crowding-in private sector investment and providing a clear and stable direction of travel for investment projects.

“We’re calling for better protection for the government’s capital budget, and clarity and protection for NISTA to enable it to effectively drive a clear and effective long-term infrastructure pipeline.”

The IoD’s full submission to the UK Government’s Spending Review 2025, which also includes proposals relating to tackling skills shortages, supporting a flexible labour market, sustainability and energy, boosting UK trade, tech adoption and the devolved nations, is available here.