what next for central government finance and financial management

04-01-2013

By Dr Valerie Vaughan-Dick, Chair of the CIPFA Central Government Panel.

The Autumn Statement 2012 confirmed that there will now be additional cuts and greater efficiencies for central government. With Departments already committed to budget cuts of between 25-40% under the Spending Review 2010 - and some departments being asked to find 50% - there is now a debate around how the new cuts of 1% next year (and 2% the following year) will be found: These additional cuts will be used, in part, to fund the £5billion investment in infrastructure such as upgrades to road networks. To ensure this is delivered effectively it is crucial that there is a full understanding of these commercial decisions in a central government context.

To fully comprehend the impact of the cuts and avoid any unintended consequences, a full understanding of the world of central government finance is required. The Public Accounts Committee (PAC) recently reported on the unintended consequences of the decision at HMRC to reduce staff thereby meeting required Spending Review savings of £100 million. But this resulted in an overall loss to the Exchequer of over £1.1bn in uncollected taxes not being chased.

The fully updated CIPFA publication ‘Guide to central government finance and financial management  is an important addition for anyone interested in obtaining a strategic overview of UK central government finance and management issues relevant to the sector.

The UK as with many other countries is facing severe economic issues that affect everyone in the economy. The sovereign debt crisis has resulted in fiscal retrenchment as governments work to reduce their debt to reassure investors, markets and to try and stabilise their finances.

The UK Government has embarked on a plan to reduce public spending by £81bn by 2014-15. This level of cuts presents a challenge for how public services will be delivered and commissioned in the future. This can only be achieved through a clear understanding of how public finances are accounted for and managed. Coupled with this, the Civil Service Reform Plan published in June 2012, has identified that whilst finance departments have significantly improved their capabilities, many more civil servants need a higher level of financial knowledge. This guide is an important addition to their toolkit to make this happen particularly given the cuts identified in the Autumn Statement.

The Guide is not just for civil servants. It is useful for all those working with government who wish to understand the world of finance and the different frameworks used in this sector and their interaction.

Under the cross government Finance Transformation Programme (FTP), led by the Head of the Government Finance Profession and the Finance Leadership Group, the aim is to strengthen financial management in government and ensure that finance is at the heart of decision making – but we are not there yet. The FTP is a key part of the overall transformational Civil Service Reform programme, which was launched in June 2012.

To lead this transformational change all parties need to understand the full impact of their decisions both for the short and long term; for instance the full “eye-watering” costs of PFI as stated in an event presentation by Bruce Mann, head of the Government Property Unit. It was only the publication of the Whole of Government Accounts that highlighted not only the current cost of PFI investment in public sector infrastructure (as seen in the National Accounts) but the long term commitment to the repayment of this investment too. This has led to fundamental questions as to the value for money of the PFI decisions over the long term.

The complex world of finance, especially as this period of austerity will continue until 2017/18 it is paramount to have an understanding of central government accounting principles for all public sector leaders and not just something that finance staff need to worry about. We all need to pool our knowledge and expertise together if we are to emerge stronger, more resilient and better able to effectively manage the challenges ahead.

Further Reading

CIPFA's Guide to Central Government Finance and Financial Management can be found here.