Economists sceptical over UK Spending Review's partly AI-driven 10% budget cuts

Leading economists have questioned how the UK government's Spending Review can determine exactly 10 percent cuts to admin budgets — partly powered by AI and digital transformation — across central departments when they are starting from different places and have different projects to manage.

What is the evidence that you have managed to utilize AI more efficiently?

Appearing before Parliament's Treasury Committee last week, Helen Miller, deputy director of the Institute for Fiscal Studies, queried the results of a zero-based review (ZBR) of budgets which led up to the Spending Review.

"Is it right that they can all make exactly 10 percent? That seems… you know… I'd be very surprised if that was the correct answer that came out of [the ZBR]," she told MPs.

Earlier this month, the government's multi-year spending review, the first since 2021, set out plans for department spending and savings, in an effort to find the right balance between raising taxes, investing in infrastructure, making cuts, improving services, and increasing borrowing. Labour founded its plans to make £14 billion ($18.7 billion) savings from greater efficiency, partly through AI and digitization.

In the Spending Review 2025 document [PDF] — under the heading Creating a cost-effective, high-performing civil service — it details departmental administration budgets for 2025/26 to 2028/29.

Departments getting a 10 percent cut include the Department for Health and Social Care, Department for Education, the Home Office, Ministry of Justice, Ministry of Defence, Ministry of Housing, Communities and Local Government (MHCLG), Department for Digital, Culture, Media and Sport (DCMS), Department for Science, Innovation and Technology (DSIT), the Department for Work and Pensions, and HM Treasury.

As part of the ZBR they were required to take a "digital-first approach" to consider digital, data, and technology (DDaT) spending and "involve their chief digital and information officer and internal digital functions when preparing ZBR returns"."

A number of departments have detailed how IT and digital investment will help produce administrative efficiencies in accompanying Spending Review documents [PDF].

For example, the DHSC said technology and digital transformation would "optimize the use of clinical and administrative time and avoid delays caused by outdated technology."

The Ministry of Justice said it would roll out AI across its agencies to "streamline repetitive administrative tasks, enhance decision-making and improve service quality."

MHCLG aid it would "increase productivity by using AI to expedite routine tasks, quickly checking simple errors and helping with administrative tasks such as note-taking." This will reduce demands on staff time by an estimated 500,000 hours per year, it said.

DSIT said it would "be an exemplar for modern digital government through exploring, identifying, and implementing AI opportunities across the department, to improve staff productivity and free up time spent on administrative tasks."

But Miller puzzled over how departments signing up to 10 percent administrative cuts would all come to the same figure.

"It's very stark. If you look at the departments, it's assuming the same for everywhere. It does seem hard to think that if you had genuinely gone around and looked at each of them — where some are getting big budget increase, some are getting big budget cuts, they're presumably changing programs — it is right that they can all make exactly 10 percent?" she asked.

Dr Gemma Tetlow, chief economist, Institute for Government, agreed: "it does look a little bit strange that this is the same across all departments."

The Register has asked HM Treasury for a response.

As well as the cuts to administrative budgets, the government has committed to an expectation of at least 1 percent technical efficiencies for all departments in all future years, in line with an recommendation from the Office for Value for Money, a time-limited treasury unit.

"To support this commitment, the government will publish bespoke departmental efficiency targets and plans biennially, embedding a culture of continuous improvement backed up by greater confidence in delivery," it said.

Dr Tetlow told MPs: "It's going to be incredibly hard to measure this, but the benefit of having these plans is that at least provides an area to start asking questions as time goes on. What is the evidence that you have managed to utilize AI more efficiently?"

One area the government sees as ripe for cutting is consultancy spending, which has been the subject of criticism and which successive governments have tried to curtail.

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In the Spending Review, the government said it would bring down the costs of spending on external consultants. "After announcing savings of £550 million [$736 million] in 2024-25 at the July Public Spending Audit by stopping non-essential spending on consultancy, the government expects to save over £700 million [$937 million] per year by 2028-29, reducing spend by half compared to previous trends."

Whatever the outcome of administrative budget cuts and 1 percent efficiency savings, the Spending Review bears high expectations of digital transformation and IT investment. Over the next four years, technology professionals in central government and across the wider public sector will be left holding the baby. ®