PDEL – A New Public Spending Category Set to Deliver Major Impact

John Healey’s inaugural budget was not a blockbuster, yet it may be remembered for introducing a new, energetic element in fiscal policy – the Preventative Departmental Expenditure Limit (PDEL).

Although it lacks the charm of Disney’s Wall‑E, PDEL—short for Preventative Departmental Expenditure Limit—represents a welcome and potentially significant addition.

The chancellor indicated that, in anticipation of a “brutal” spending review next year as highlighted by the Institute for Fiscal Studies (IFS), the Treasury is ready to earmark funds for preventive policies.

The initiative was partly driven by No 10. Andy Burnham recognises that achieving key objectives—such as tackling rough sleeping—requires investing more now to save resources in the long term.

While intuitively appealing, this approach does not align with the usual government or Treasury thinking about spending.

During a spending review—where Treasury authority over public finances is strongest—departments are pressured to demonstrate how they will cut costs from their own budgets.

Many of society’s greatest challenges span multiple departments. Savings from initiatives such as Family Hubs may materialise years later and affect various sectors, including welfare, health, and criminal justice.

A 2023 Demos paper introducing PDEL identified £22 billion of government costs that could have been avoided through preventive programmes.

‘For decades, governments have spoken about prevention, yet the system has consistently rewarded spending on crisis response rather than prevention,’ said Demos chief executive Polly Curtis.

In Treasury documents accompanying the spending review—and especially during months of pre‑review negotiations—PDEL will have its own narrative, alongside RDEL (day‑to‑day, or resource spending) and CDEL (investment spending) for each department.

Although technical, the categorisation of public spending profoundly influences how it is debated and understood.

Prior to Labour’s 1997 election, day‑to‑day spending and investment were not formally separated in public finances, though Gordon Brown recognised the need to treat long‑term investment and current spending distinctly.

Separating RDEL from CDEL enabled him to establish the ‘golden rule’: borrowing could fund investment, while current spending must be financed by taxation.

Capital spending separation did not stop the Conservative government from repeatedly raiding it during austerity, and now departments are being asked to reduce future capital budgets to fund the Defence Investment Plan.

However, it enables deeper scrutiny and fosters a new dialogue on the relative importance of public spending areas.

Demos argues that certain day‑to‑day spending, though not classified as investment, should be protected, as eliminating them may yield short‑term cash gains but incur net long‑term costs for government.

Gavin Kelly, chief executive of the Nuffield Foundation, which supports social research, argues that the focus on preventive spending is timely given improved data for policymakers.

He cites a series of IFS studies, funded by Nuffield, demonstrating that Labour’s Sure Start centres improved children’s educational outcomes, raised future earnings, and even reduced hospital admissions.

‘In the past decade we have become better at linking datasets across services, revealing how decisions in one public service can affect others and outcomes. This agility has not kept pace with data advances.’

Healey provided limited detail on how PDEL will be defined, while the Treasury states that departments must argue for individual projects to be classified as preventive.

Rough sleeping is highlighted as a key area. Alan Milburn is expected to make a similar case in his forthcoming review of young people not in education, employment or training, arguing that current spending on employment support can reduce future welfare, health, and housing costs. Demos also points to early mental‑health support and obesity prevention.

If defined narrowly, preventive spending could be treated as investment under fiscal rules, though the Treasury says this is not its intention.

That would imply the government borrowing now to fund projects it believes will save money over time—a logic akin to financing bridges or roads, but with a social focus.

Nevertheless, no accounting adjustments can mask the fact that, according to Healey’s budget figures, next year’s spending review—potentially delayed until autumn—appears impossibly demanding.

He hopes for better news to alleviate the pressure, but the IFS estimates £27 billion of spending pressures cannot be overcome by ring‑fencing alone.

Given this bleak outlook, it remains uncertain whether PDEL will play a starring role or remain a supporting character; however, it may at least encourage longer‑term thinking.

Source link