Excessive, politically driven "ring-fencing" distorts government spending priorities, according to a report on the Comprehensive Spending Review published by the Treasury Committee today.
The cross-party group is also critical of the aircraft carrier contract with BAE "as a symptom of wider difficulties in controlling the defence budget".
The committee argues that "although ring-fencing might fulfil electoral promises, it could also lead to allocative problems across government as a whole, and reduce scrutiny of the efficiency of ring-fenced departments". The Treasury is urged to "demand that spending currently ring-fenced in certain areas be used where the benefit is the greatest, or where greater value for money can be obtained".
The Coalition Government has tried to ring-fence international aid, the NHS and "front-line" schools spending, but cordoning off such substantial areas has meant that the cuts in other departments have had to be larger.
However, the report adds, "the decision to use the NHS budget for social care and the development budget to support fragile and conflict-affected states suggested that ring-fencing had not been absolute". The danger, identified by commentators, is that relatively inefficient spending in "ring-fenced" departments is preserved, while efficient and effective spending is cut back.
Particular problems were identified in the £40bn spent on defence. Andrew Tyrie, the committee's chairman, commented: "Successive governments have struggled to deal with an over-committed defence budget. The Treasury should draw on the lessons from the seemingly 'unbreakable' carrier contract to analyse all future procurement to ensure that value for money is being obtained, particularly when little competition exists."