Alexander reveals new ‘fiscal discipline’ rules for government

23 Apr 12
Chief Secretary to the Treasury Danny Alexander has today set out new fiscal rules across government that will see departmental spending more closely monitored by the Treasury.
By Richard Johnstone | 23 April 2012

Chief Secretary to the Treasury Danny Alexander has today set out new fiscal rules across government that will see departmental spending more closely monitored by the Treasury.

Dannny Alexander

Alexander told the Institute for Fiscal Studies that the UK finances should never again be allowed to get into ‘a mess’. He outlined two new rules to ensure ‘fiscal discipline’, in addition to the government’s spending cuts, warning that the deficit ‘remains a clear and present danger to stability’.

Departments will now need to monitor and share spending information with the Treasury on a monthly basis. They will also be required to have a plan for around 5% of their budgets to be ‘re-prioritised’ if new spending pressures emerge.

Alexander said that the new rules have been drawn up with finance directors from across Whitehall and would ‘fundamentally change and improve financial management across all organisations spending public money’.

The system of financial management is being reformed by the government’s Finance Transformation Programme, but has in the past been ‘stifled by poor information sharing and poor incentives’, Alexander added.

‘From now on, all departments must monitor and share spending information with the Treasury on a monthly basis. And that data must be consistent.’

Improved monitoring will also change the incentives on financial management across government, he said. ‘The old system of financial management implicitly rewarded those who didn’t manage their finances. In the end, when departments faced policy problems or where difficulties have emerged, they felt they could simply turn to the contingency reserve to bail them out.’

Departments will also be told that they will have to use their own funds to meet any new funding challenges that arise.

‘In the spending review, we deliberately kept the reserve small in order to get the most money out to departments. It means that departments have to be able to deal with problems that arise from within their own budgets,' Alexander said.

‘Many departments already operate a small unallocated provision in their annual budgets, to meet smaller pressures that arise. And, under the new rules, I have asked all departments to identify around 5% of their resource budget that could be re-prioritised if new pressures emerge or new policies have to be funded, so there is a shared understanding of how it could be paid for.’

He added that in the future, he would take financial management performance into account when deciding whether to approve requests for funding from the government’s reserve.

‘That means punishing poor management, but it also means rewarding those with a record of good financial management with greater freedom over their budgets.’

Responding to the announcement CIPFA’s director of policy and technical, Ian Carruthers, said: ‘We agree with the chief secretary's central message that good financial management is critical and should involve planning for the possibility that conditions may become much more difficult. The precarious position in the Eurozone remains a very serious risk.

‘Delivering further savings equivalent to 5% of departmental budgets will be a very tall order. But it is more likely to be managed well and delivered successfully if realistic contingency plans have been laid.’

Spacer

CIPFA logo

PF Jobsite logo

Did you enjoy this article?

AddToAny

Top