Wales: towards a new budget process

25 Jul 14
Eleanor Roy

The interim report on the development of a new Welsh budget process by the Assembly’s Finance Committee shows they are leading the way in innovative approaches 

The Wales Bill provides for the devolution of powers for the National Assembly for Wales to develop its own budget process. This will allow the development of a new process fit to deal with taxation and borrowing powers also devolved in the Bill.

In preparation for such power, as the Bill works its way through the House of Lords, the Assembly’s Finance Committee is conducting an inquiry into budget best practice, to inform the development of a Welsh budget process.

Their interim report on the first part of this inquiry has now been published and considers international best practice in budget procedures and their applicability to Wales.

Drawing on both written and oral evidence provided by CIPFA, the Committee make a number of recommendations in their interim report , including:

 • a new Welsh budget process should adhere to the Organisation for Economic Co-Operation and Development’s principles of budgetary governance;

• the annual budget process should link more clearly to multi-year strategic plans and longer term financial forecasts;

• taxation and spending plans should be authorised via a single budget Act;

• future budgets should link capital expenditure plans to the method of financing to be used (eg borrowing or other financing mechanisms such as PFI or NPD vehicles) and these should be approved by the Assembly as they represent a financial commitment over future years; and

• as part of budget scrutiny the Committee should be provided with up to date information on outstanding financial commitments.

In written evidence to the Committee, CIPFA advocated a whole systems approach, in that the budget process should be considered in the context of the whole system of public financial management within which it will operate, rather than in isolation. The Committee’s interim report accepts this approach and commits to work with the Welsh Government to explore how this could be achieved in light of the forthcoming taxation and borrowing powers.

Together with other witnesses, CIPFA also advocated the adoption of a more outcomes-based approach to budgeting and financial management to better integrate funding allocation, service delivery mechanisms and outcomes to support the achievement of best value for taxpayer funds and financial sustainability.

Some witnesses highlighted cases where outcomes-based budgeting has led to a loss of detail in the financial information presented in the budget. Nevertheless, the Committee’s interim report recommends that in future Welsh budgets should allocate resources to specific measurable outputs, to act as ‘stepping stones’ towards the achievement of longer-term outcomes. If adopted this would mean that Wales would lead the way in the UK, in terms of such a direct link between performance and budgets.

To their credit, the Finance Committee also recognise the importance of financial reporting as a source of information to inform budget scrutiny. In line with CIPFA’s recent call for a balance sheet for the public sector in Scotland, the Committee’s report calls for an alignment exercise to be conducted as a first step towards a Welsh whole of government accounts incorporating such a balance sheet for Wales. The report also states the Committee’s intention to work closely with the Welsh Government to further develop budget procedures, including any relevant legislation, to provide a budget process ‘appropriate for Wales and fit for the future’.

It will be extremely interesting to see the Welsh Government’s response to this interim report over the next few weeks. In the autumn term the Committee intend to continue with part 2 of this inquiry, considering how new Welsh budget procedures will be planned and implemented. As part of this they have stated the intention to consider financial forecasts for Wales and the role of the Office for Budget Responsibility.

Dr Eleanor Roy is research consultant for CIPFA Scotland

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