An academic analysis finds that spending extra money on mental health care boosts economic growth and improves the country’s well-being more than building new roads.
The report from the London School of Economics (LSE) says Whitehall needs to rethink the way spending decisions are made, with more focus on how the money actually improves people’s lives, particularly in terms of wellbeing.
Researchers have assessed the cost-benefit ratio of policies across government departments to convince Rachel Reeves to scale back expensive road projects such as the Lower Thames Crossing and invest more in health, education and skills to boost the economy.
The finance minister is expected to announce a budget and a comprehensive spending review next month, setting out the government’s spending priorities for the next five years.
Reeves is expected to announce major cuts to some Whitehall spending to stay within budget constraints inherited from the previous Conservative government. Some major road schemes have already been cancelled, including a planned tunnel near Stonehenge on the A303.
The LSE researchers assessed the gains made by individual spending decisions relative to their returns in terms of savings and welfare benefits in terms of their monetary equivalent.
They calculated that targeted spending on mental health and addiction treatment would not only help those affected, but would also reduce the overall cost of health and welfare services, and would put money back into the coffers as people returned to work.
They also found that psychological therapy for addiction and employment support for moderate mental illness pay for themselves within two to three years.
While other policies increased total government spending, they also produced very high benefits per pound. For example, a promise to provide apprenticeships for everyone produced benefits that were 14 times greater than the costs.
They also found that more police officers would bring benefits, such as reduced crime, that would be more than ten times greater than the impact they would have on people’s well-being.
In contrast, an evaluation of road projects concluded that the average scheme delivers benefits of only three times the costs, while the proposed Lower Thames Crossing, linking north Kent with south Essex, would deliver benefits of only 1.5 times the costs.
Richard Layard, one of the report’s authors, said the savings from people having fewer health problems, returning to work earlier and claiming fewer benefits should be prioritised because they reduce the overall cost to government.
Lord Layard, emeritus professor of economics at the LSE and a former government adviser, said the report – entitled Value for money – was inspired by Keir Starmer’s pledge, made when he was Leader of the Opposition, that “for every pound spent on your behalf, we expect the Treasury to consider not just its impact on national income, but also its impact on wellbeing”.
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The report will be launched on Tuesday at the Institute for Government think tank’s central London offices, with support from former civil service chief Gus O’Donnell and Amanda Rowlatt, a former chief analyst at the Department for Transport.
Layard said the methodology used by the LSE team was similar to the National Institute for Health and Care Excellence (Nice) cost-benefit analysis, which assesses the value for money of new medicines and therapies for the NHS.
He added: “We now have the scientific knowledge to estimate the cost-benefit ratios for most policies, and these should form the basis for the next spending review.”
O’Donnell said: “This is an extremely important report. It should lead to major improvements in how government uses our money to improve lives.”
The Ministry of Finance declined to comment.