UK Treasury Sets Tough New Spending Rules For Government Departments
First Published Sunday, 22nd April 2012 11:16 pm - © 2012 Dow Jones
By Ainsley Thomson
Of Dow Jones NEWSWIRES
LONDON -(Dow Jones)- The U.K. Treasury plans to force government departments to open their books for inspection each month and will make them set aside 5% of their budgets as 'rainy day' funds under tough new spending rules designed to ensure Britain sticks to its austerity program.
In a speech Monday at the Institute for Fiscal Studies, Chief Secretary to the Treasury Danny Alexander will say the new 'spending rule book' will change and improve financial management across all organisations that spend public money.
"These new controls are not just a tweak to the Whitehall machine," Alexander will say according to extracts of his speech. "They are another signal of our unwavering determination to deliver the fiscal consolidation we promised."
When it came into office in 2010, the coalition government launched a spending review as part of its austerity measures to tackle the country's huge budget deficit. The review set out GBP79 billion of spending cuts to be made by the end of the 2014/2015 financial year. By the end of the last financial year, which ended in March, the government had made 30%, or GBP23 billion of those cuts.
"In an environment of economic uncertainty, with ongoing instability in the euro zone, the U.K.'s large deficit remains a crucial economic vulnerability. It remains a clear and present danger to stability." Alexander will say as part of his argument as to why the government cannot slow its spending cuts, which is the tactic proposed by the opposition Labour Party,
In a departure from the current adhoc reporting arrangements, the new spending rules will make departments monitor and share spending information with the Treasury each month. The data given to the Treasury will have to be shown to be consistent with that given to the department boards.
Alexander will also say that he has asked all departments to identify around 5% of their resource budget that could be re-prioritized if new pressures emerge or new policies have to be funded.
In the past, departments have been able to dip into the central reserve fund if they need to pay for a sudden expenses. Alexander will say that the government has intentionally kept the reserve small--in the 2012/2013 financial year the reserve is GBP2.8 billion compared to GBP4 billion in 2009/2010--in order to get the most money out of departments.
The criteria for being able to access the central reserve fund will also be tightened so only departments that have a genuine, unforeseen and unmanageable expensive--such as the 2007 outbreak of foot and mouth disease that affected British farm animals, or last year's London riots--will be given additional resources.
The rules will also stipulate that if the treasury is unhappy with a department's spending controls, the chief secretary will ask the National Audit Office to investigate and will also report the matter to the cabinet minister in charge of the department and to the head civil servant.
In contrast, if a department meets all its spending requirements, it will be given greater flexibility to manage its own budget.
-By Ainsley Thomson, Dow Jones Newswires; 44 20 7842 9318; email@example.com