Feature / Clear line of sight

A government project aims to align the different public spending frameworks to improve consistency, understanding and the quality of information given to Parliament, the Treasury’s Alexandra Edwards explains

Government finance is a complex area. With a spread of operations as broad and unique as those found in government, some complexity is inevitable. But there is a valid argument that the system is overly complicated because of the mismatches between the different spending frameworks – although it is equally fair to say that the different spending frameworks have developed over the years in different ways for understandable reasons.

The alignment – or ‘clear line of sight’ – project, announced by the prime minister in the Governance of Britain green paper in July 2007, is designed to bring greater coherence to the public spending frameworks and consistency in the measurement of public expenditure. The project is, however, about more than changing some of the numbers;

it is about giving Parliament better information, so that it can scrutinise and challenge more effectively.  Specifically the aims of the project are to:

• Modernise the public spending system to make it more accountable and transparent, allowing Parliament to scrutinise public spending more effectively
• Simplify the reporting of public finances by reforming the way government publishes budget and accounting information, making it more efficient and easier to understand
• Improve the way public spending is managed by bringing spending control in line with the way that departments manage their business and giving greater incentives for value for money.

Three different expenditure frameworks in government – budgets, estimates and accounts – all seek to measure public expenditure, but in different ways and with different boundaries. (To complicate matters further, there are also the national accounts. These provide important measures of fiscal performance, but are prepared independently by the Office for National Statistics (ONS), so they are outside the scope of the project.)

Simplification has many advantages for both government and Parliament. For instance, streamlined financial publications will be presented to Parliament, enabling improved scrutiny and challenge to departmental spending. Meanwhile, departments will have greater control over their public spending and the way they manage themselves, resulting in improved risk management and stronger value for money incentives when delivering programmes. The results for departments will be a more cost-effective system, which promotes greater administrative efficiency, leaving the focus on value for money spending.

The project has already received a great deal of support among stakeholders. But major changes will be required to achieve a better aligned framework affecting many systems and processes. Most notably these include:

• Parliamentary controls over government spending will be aligned with the Treasury’s budgeting controls. The budgets agreed between the Treasury and departments come out of the spending review process, but at present these budgets – the central financial management tool for both departments and the Treasury – are not the basis of the estimates presented annually to Parliament.
• All non-voted expenditure and income within budgets is to be brought within the coverage of estimates. At present Parliament sees nothing in the estimate of expenditure plans where, for technical reasons the funding does not need to be voted.
• The estimates and resource accounting boundaries are to be widened to include non-departmental public bodies (NDPBs) and other bodies classified to the central government sector by the ONS. Budgets are already based on the spending of departments and all the bodies associated with them, and estimates and accounts will use the same basis.
• Parliamentary controls in estimates are to be on a net basis (rather than gross and net basis) to line up with budgetary controls, so departments can use any income they generate, subject to some limitations. Departments, for example, must continue to charge fairly where they are a monopoly supplier and can only keep income if of a kind agreed by Parliament.
• The budgeting concepts of near-cash and non-cash – rarely understood other than by those handling them regularly – are removed from budgets, so there is a single resource departmental expenditure limit (DEL) budget. 
• The number of departmental and Treasury expenditure documents will be cut to three ‘publication events’ each year: a departmental report and accounts, a main estimate and a supplementary estimate.  

Next steps and NHS impact

Ministers and Parliament have agreed to the alignment proposals and a three-year phased implementation is well under way – most departments have implementation plans.

In 2009/10 there will be preparations for implementation, including amended guidance, changes to systems such as the Combined Online Information System public spending database in the Treasury, a comprehensive training programme and legislation via the Constitutional Reform and Governance Bill.

In 2010/11 implementation of budgetary changes and dry-running of estimates and resource accounts on the new basis will occur, and full implementation is scheduled for 2011/12 with live running of estimates and resource accounts on the aligned basis.

Although this is a big change for central government departments, it has little impact on other bodies and most people won’t notice any difference in the short term.

Many NDPBs and NHS organisations will be largely unaffected by the changes, although departments may need to ask for fewer obscure pieces of information whose use isn’t obvious.

But as part of the programme, there will be a change to year-end reporting, with publication of consolidated accounts brought forward to mid-June. So departments will be looking for consolidation data from bodies within the consolidation boundary early after the close of the financial year. With a phased implementation and transition plan the changes are not expected to be too burdensome for NDPBs. 

For departments, there are some immediate gains – the need for parallel systems disappears and there will be fewer financial limits to focus on  though faster closing of the accounts will bring new challenges. But the most important consequence is that in the longer term Parliament will have a clearer understanding of the expenditure it votes and can scrutinise and challenge expenditure plans more effectively. This should in turn lead to greater efficiency in the allocation and use of resources – and a more effective democratic process.