In the context of ongoing austerity, and at a time when large government projects such as Universal Credit are seen to be having poor outcomes, there is a strong case that government’s financial management systems need reform. Whitehall is looking at this, with a review of financial management by Richard Douglas, the head of the government finance profession, and the Treasury’s public spending chief Sharon White.
Whilst support roles such as ICT and HR look set to be centralised under the Cabinet Office, reforms to the finance function will be led by the Treasury. The relationship between these two ‘centres’ of government has not always been positive, with the Cabinet Office’s Efficiency & Reform Group now in a space seen by many people inside government as one which Treasury should occupy.
This highlights the long running conflict at the heart of the Treasury. Is it an economics ministry, focused on headline fiscal events and macroeconomic tools; or is it a finance ministry, building and refining a whole system approach to financial management to better support government in achieving policy outcomes?
In this debate, we must acknowledge that the finance function in government has professionalised, with qualified accountants now in senior positions. However, we would be foolish to think that reform is solely about the capability or organisation of the finance function. The control of money runs at the heart of the power relationships in government and politics; transforming money management will mean transforming government and substantive reform of the civil service.
The easiest mistake would be to import a model that does not recognise our deeply embedded system of parliamentary accountability – in particular, the fact that departments’ accounting officers report directly to Parliament in a system where ministers are otherwise ultimately accountable for departments’ performance and activities.
Assuming that Parliament will not give up its right to oversee government accounts, then an a priori question is whether senior officials have the capability and the constitutional protection to discharge their roles. In local government, the professionally qualified director of finance has statutory powers to halt expenditure and report in the public interest when spending does not afford value for money. Similarly, in central government the accounting officer may seek a formal ‘direction’ from ministers to incur expenditure that does not afford value for money. However, I do not believe that this protection is nearly strong enough. We must acknowledge that it’s unlikely that permanent secretaries are able to act as robustly in the public interest on spending as they might wish to, when they are also charged by ministers with delivering their priorities to political timescales.
The finance review should also consider the role of the departmental chief financial officer (CFO) in supporting the accounting officer, to ensure that CFOs can adequately support effective governance and accountability. Two particular questions need to be asked: to whom should the CFO report – solely to their permanent secretary, or also to Treasury? And how best do we build an effective Whitehall-wide finance function with the skills? Public sector accountants do need a unique combination of skills in order to balance the requirements of governance, risk and public accountability against the scale, complexity and social impact of public sector finances.
As a former accounting officer for approaching £2bn in expenditure, I can see both the strengths and weaknesses of central government arrangements. There is tight expenditure control supported by an effective finance role, but scope is limited for medium-term financial planning. The controls around accrual budgets and the short-termism of the parliamentary timetable mean the focus is too often on the immediate rather than longer-term investment. Also, as someone schooled outside the civil service, I think the “them and us” mentality between departments and HMT has no place in a modern system.
We need a holistic plan to improve capability and accountability systems: one that emphasises medium- and short-term financial planning; that is not a triumph of process over outcome; and that tries to embed increased value in the finance function across government. We also need to see a head of finance profession, based in the Treasury, with a role in setting the framework by which all finance staff are managed and held to account.
Finally, whilst money really matters at any time, it’s particularly important over the next decade of fiscal constraints that we use public funds efficiently and effectively. The finance role in central government operates in the complex context of political accountabilities that lie at the heart of our democracy. It needs cherishing, development and support: let’s empower it to send tough messages and, in return, promise not to shoot the messenger.
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