Look back in awe

3 Jun 10
Accounting for the public finances has changed dramatically over the past 125 years, and CIPFA with it. Tony Travers takes a trip back through time
By Tony Travers

03 June 2010

Accounting for the public finances has changed dramatically over the past 125 years, and CIPFA with it. Tony Travers takes a trip back through time 

It would be a gross understatement to say much has happened since the Corporate Treasurers’ and Accountants’ Institute held its first meeting in Manchester in December 1885. Six monarchs and 24 prime ministers have been in position in the intervening years. Two world wars have been fought. Innumerable Acts of Parliament have been passed to reform the government of Britain. And, of course, the institute itself developed into the Chartered Institute of Public Finance and Accountancy.

That first meeting took place in the middle of a general election that resulted in a Liberal, William Gladstone, becoming prime minister. Within a year, the Conservatives, led by Lord Salisbury and supported by ‘Liberal Unionists’, were back in power, suggesting the idea of Tories and Liberals joining together to form a government is nothing new. Indeed, it happened again during the 1930s when Conservative leader Stanley Baldwin managed to tempt a splinter of Liberals into his ‘National’ government.

The Liberal Unionists included Joseph Chamberlain, the great Birmingham civic leader, among their MPs. Local government itself has been reformed many times during the institute’s 125 years. At the end of the nineteenth century, Parliament and the government were predominantly interested in the Empire and ruling the waves. Councils were left to their own devices, responsible for almost all ­public services. More than 90% of local ­government spending was funded from the rates.

The need for professionalism in the management of public money predated even the institute’s formation. Gladstone, as a reforming chancellor, had passed the Exchequer and Audit Act 1866, ­requiring all government departments to keep accounts. The comptroller and auditor general was appointed to scrutinise the government’s accounts and to report to the Parliamentary Committee of Public Accounts, which had been created in 1861. The District Audit service predated even Gladstone’s central government ­reforms, having been created in 1844.

At a time when the state was very small, each additional pound of public expenditure was viewed as a radical step. Ratepayers and other electors were suspicious of any waste, meaning that those who were responsible for the management of the rates and government grants were important figures in the developing municipalities. Great industrial centres such as Birmingham, Manchester, Liverpool and Glasgow were growing at the kind of pace seen in Chinese and Indian cities today.

Manchester’s population rose from about 22,000 in 1758 to 303,000 in 1851. Birmingham grew at broadly the same speed, from 24,000 in 1750 to over 500,000 in 1900. The need for sewers, roads, lighting, police services, tramways and housing in such vast metropolitan areas created major rate-borne budgets. Councils became big business, with some developing municipal enterprises such as electricity and gas companies.

In this, the heyday of local government, probity and professional standards were essential if the public was to be convinced to shoulder an increasing burden of taxation. It is hardly surprising that Manchester Town Hall was chosen as the location for the institute’s first meeting. The Manchester Guardian reported: ‘For some years past, the treasurers of municipal corporations have felt the necessity for some means of communication for the discussion of questions relating to ­municipal finance.’

Such communication and discussion has continued through the remarkable 125 years that have elapsed since then. Public services that started in local government have, in many cases, been transferred to nationalised industries, appointed boards, colleges and schools. Thus, water and sewage services are now embedded in previously nationalised industries that have been privatised.

Public sector accountants have had to cope with many reorganisations of local government and, as they have moved into the health service and elsewhere, reforms and change there, too. Council reorganisations took place at the end of the nineteenth century as the government sought to create a uniform system of local government across the country. Rural areas developed far less consistent and universal public services than the great cities. The creation of counties and districts allowed the benefits of education, public health, libraries and highways to be extended beyond the industrial heartlands of England, Scotland and Wales.

The Local Government Act 1888 required counties to appoint a finance committee. Anyone who believes that contemporary local government is over-concerned with performance measures and expenditure data would be surprised by the extent to which such demands were already in place by the end of the nineteenth century.

In 1939, Gwilym Gibbon and Reginald Bell’s book, History of the London County Council 1889-1939, observed: ‘The check of the finance department on the proposals of spending departments is strict. The figures are compared with those of former years, changes in prices and the like are considered and estimates are checked by reference to unit costs, such as average weekly cost per patient, cost per head of maintenance in schools, ambulance service cost per call and cost per mile run, in certain cases cost per inspection.’

Apart from the performance ­indicator regime implied, the range of services provided by counties is also fascinating. Hospitals, ambulances, schools and even inspections were county matters. Public sector accountants were expected to measure the costs of activities and to publish them in ways that allowed comparisons from year to year. Moreover, this was done without calculators or computers.

Gibbon and Bell’s book included a marvellous Punch cartoon (worthy of the Taxpayers’ Alliance) from 1905, entitled ‘The Municipal Road to Ruin’. It showed a nervous passenger in a speeding car marked ‘Expenditure’ saying: ‘I say, isn’t this rather an excessive rate? After all, you know, it’s my car’. The vehicle is rushing in the direction of a sign marked ‘TO THE PRECIPICE’.

This kind of suspicion about the use of ratepayers’ money informed the behaviour of councils and their finance officers. Professional standards were transmitted, albeit slowly, through networks of treasurers, who changed the name of their institute to the Institute of Municipal Treasurers and Accountants. The city treasurer of Sheffield, J M Drummond, wrote that the IMTA had ‘done valuable pioneer work in publishing a standard form of accounts, although unfortunately it has not yet been widely adopted’.

Major world events could generate ­curious new tasks for local government accountants. In an epic account of social progress during the Second World War, sociologist Richard Titmuss described the deplorably complicated accounting procedures required to transfer money between councils as a result of the costs of providing school milk to evacuated children. Tiny amounts of cash had to be paid by city authorities to compensate rural councils for the resources spent on evacuees. Municipal paper flowed backwards and forwards across the country while bombs fell from the skies.

After the war, local authorities were able to expand their activities substantially, particularly when the prosperous 1950s brought massive expansion of council housing and social service programmes. Local government grew rapidly. Overall revenue expenditure in England and Wales first passed the £1bn mark in 1894, rising to almost £5bn by 1939. If £1bn is an impressive sum today (except in terms of banking indebtedness), it is hard to imagine how big it must have seemed over 100 years ago. Total UK local government spending – current and capital – in 2010/11 will be almost £170bn. Even allowing for inflation, the scale of the task of managing council finance has grown vastly.

Scale has brought complexity, both in terms of politics and financial instruments to be managed. Local finance officers probably never imagined they would be dragged into national politics in the way they were in the 1980s, first by the antics of radical Labour councils and then by the implementation by the Conservative government’s community charge or ‘poll tax’. The period from 1980 to 1990 was one of near-permanent struggle ­between central and local government.

‘Creative accounting’ became a feature of (at least some) councils’ attempts to evade Conservative prime minister Margaret Thatcher’s controls on spending. Town halls were sold and leased back. Spending was moved from year to year to maximise grant receipts. Liverpool and Lambeth eventually delayed setting a rate (as a protest against capping) for so long their councillors were surcharged. ­Council finance officers unwittingly found themselves in the thick of this conflict.

The poll tax proved to be one of the most catastrophic policy errors of all time. Although local authority finance staff managed to introduce it on time, it proved spectacularly unpopular and had to be replaced within three years by council tax. The agony of this period has had an impact on national politics ever since – politicians are now afraid of reforming local taxation.

In more recent times, members of CIPFA – following another name change, the IMTA was no more – have had to handle the complexities of the Private Finance Initiative and, in 2008, the baleful consequences of the Icelandic banking collapse. Both these policies have once again given prominence, though not all of it welcome, to the skills of those who manage council finances and accounting.

CIPFA’s previous headquarters at 1 Buckingham Place, SW1 was briefly the home of Patrick McGoohan in his role as No 6 in the 1960s cult drama The ­Prisoner. In the programme’s opening credits, sleeping gas was forced through the letter box so as to knock out McGoohan, who had just resigned from the secret service. Intriguingly, given his house-share with CIPFA, the prisoner’s best-known line was ‘I am not a number, I am a free man’. Many public sector accountants will ­sympathise with this view.

Life in public finance is, of course, less dramatic. Perhaps because of this, its professional body has now prospered for well over a century. Looking ahead, with the risk of further global economic chaos on every side, it seems unlikely the next 125 years will be any less event-filled than the last 125. However bad things get, the books will still have to be kept.

Tony Travers is the director of the Greater London Group at the London School of Economics. CIPFA’s 125th anniversary programme is supported by the Co-operative Bank, Hays Public Sector
and Zurich Municipal

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