Spending extra cash on mental health services would boost economic growth and improve the nation’s wellbeing more than building new roads, according to an academic analysis.
The report from the London School of Economics (LSE) argues that a rethink is needed inside Whitehall about how to approach spending decisions, with more focus on how the money actually improves people’s lives, particularly in terms of wellbeing.
Researchers assessed the cost-benefit ratio of policies across a range of departments in a drive to convince Rachel Reeves she should downgrade costly road projects such as the Lower Thames Crossing in favour of putting more cash into health, education and skills to boost to the economy.
The chancellor is due to announce a budget and comprehensive spending review next month, setting out the government’s spending priorities over the next five years.
Reeves is expected to announce severe cutbacks to some Whitehall spending to stay within budget constraints carried over from the previous Conservative administration. Some important 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 cash savings and wellbeing benefits in terms of their money equivalent.
They calculated that targeted spending on mental health and addiction services would not only help those affected, but also reduce the overall cost of health and welfare services while returning money to the exchequer as people returned to the workplace.
They also found that a psychological therapy service for addiction and employment support for moderate mental illness would pay back within two to three years.
While other policies were found to increase overall government spending, they were found to yield very high benefits per pound, for example a pledge to guarantee every person entitlement to an apprenticeship was judged to deliver benefits with a worth 14 times more than what they cost.
Similarly, they found more police officers would produce benefits through reduced crime worth more than 10 times their cost in terms of their impact on people’s wellbeing.
By contrast an assessment of road projects concluded the average scheme produces benefits worth just three times the cost while the proposed Lower Thames Crossing, connecting north Kent and south Essex, was said to offer benefits equivalent to just 1.5 times the cost.
Richard Layard, one of the report’s authors, said the savings from people having fewer health problems, going back to work earlier and claiming fewer benefits were worth prioritising because they reduce overall costs to the government.
Lord Layard, the emeritus professor of economics at the LSE and a former government adviser, said its report – titled Value for Money – was inspired by Keir Starmer’s promise, made when he was leader of the opposition, that “with every pound spent on your behalf, we would expect the Treasury to weigh not just its effect on national income but also its effect on wellbeing”.
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The report will be launched on Tuesday at the offices of the Institute for Government thinktank in central London with the support of the former head of the civil service Gus O’Donnell, and Amanda Rowlatt, a former chief analyst at the Department for Transport.
Layard said the method used by the LSE team mimicked the cost-benefit analysis used by the National Institute for Health and Care Excellence (Nice), which assesses the value for money that new drugs and therapies offer the NHS.
He added: “We now have the science to estimate benefit-cost ratios for most policies, and these should be the basis of the next spending review.”
O’Donnell said: “This is an exceptionally important report. It should lead to major improvements in how the government uses our money to improve lives.”
The Treasury declined to comment.