How to run a spending review
I’m heading back to the Institute for Government next week to talk about how the government should run a spending review. My usual approach to this sort of panel is just to make up something plausible on the commute in, but after two years working for a council I feel the need to say something a lot more robust. I think a reflection on the way we do business in local government might be useful for the Treasury.
This blog is really very initial thinking to spark debate. I’m hoping some wise financial heads out there might help me hone the ideas ahead of my talk.
Thought one — your budget is your strategy
Most public bodies set their strategy and their budget in silos. People like me go and set shiny organisational goals, convert them into performance targets and culture change plans and try to make them happen. But somewhere else in the council a parallel conversation will be going on about spending; and in a fight between the strategy and the budget, the budget always wins.
This means that in most organisations, most of the time, the de facto strategy is being set by tactical conversations between finance professionals. Let’s make this a bit less abstract by reflecting on recent debates about whether the Treasury was spending enough on preparations for a no-deal Brexit. Or take the example of local government — in the absence of any countervailing plan for the future funding of councils, the Treasury has been allowed to play a losing game of fiscal chicken against the oncoming juggernaut of the ageing society.
Basically, your budget should be the financial expression of your political strategy. But in practice, the opposite is often the case — the budget is a political rationalisation of a fiscal strategy. Let’s put it crudely — too many budgets are really just about balancing the books.
Thought two — therefore, your strategy needs to boss your budget
The only way to change the situation I’ve set out above is to put organisational strategy first. We need to set out what we want to achieve and then build a financial strategy that enables us to meet our goals. This requires a lot of work from an organisation’s corporate centre — first to articulate a clear strategy and then to work intensively with services/departments/whatever to create a shared understanding of the challenge, analyse the evidence, challenge the service to reform and eventually bring together a package with clear links to outcomes.
I know this sounds obvious, but in practice it hardly ever happens. There are some obvious reasons for this. The main one is that large, multifunctional organisations often don’t really want a strategy at all: leaders want to maximise their own autonomy, and will often choose bilateral discussions with finance professionals over a collaborative discussion about a shared project.
If you have a series of bilateral negotiations in the absence of over-arching strategy, you give leaders loads of opportunities to try and game the process to protect their service. This forces the finance professionals to deploy countermeasures like star chambers. And the problem with those is that…
Thought three — star chambers are just about the worst way ever to set budgets
The term ‘star chamber’ has its roots in the 15th century British judicial system, and is generally associated with arbitrary and secretive decision making. It was the sort of place where defendants got sentenced to having their ears cut off. I’m mystified by the fact that we still use the term to describe the meetings in which local and national budgets are decided.
A lot of cutting still goes on in star chambers, but participants generally leave physically intact, if not always psychically. Basically a small group of politicians sits in judgment over big lists of departmental savings, with the whole process designed to exert maximum pressure on defendants to give up as much of their budget as possible.
This only serves to reinforce the idea that budgets are the political rationalisation of fiscal pressures. What we really need is a mature discussion between cabinets and officials about the overall budget package — what pressures do departments face, how can we overcome those, what would that mean for the administration’s ambitions? Even better if we can start to engage the public in that debate.
Thought four — a reflection on our journey in Redbridge
I don’t want to make great claims for what we’ve done in Redbridge: other councils are far more advanced than we are. But I think we’re heading in the right direction. Our old budget process was pretty traditional — directorates cooked up savings plans which then went into star chamber. That sort of worked in my early days here when our savings plans were still relatively straightforward — reduce a service here, raise some charges, cut some posts etc etc.
The problem we faced was there are only so many times we can cut our inputs. In year eight of austerity there aren’t many posts left to cut or services left to trim. We needed to start thinking about a more ambitious approach — investing up-front to reduce the long-term costs of care, investing in property and reshaping our borough. Our budget process this year was jointly run by our Transformation, Business Intelligence and Finance teams, with each service area getting intensive support to examine what was driving their spending and identify areas where demand could be managed or income could be achieved.
Through a series of really intensive meetings, each service presented its plans back to the whole of the council’s senior leadership (typically 30 plus people) so we all understood each other’s challenges and had a chance to spot new opportunities and interdependencies. One of the outcomes is that we spotted lots of opportunities to redevelop and purchase specialist property for people in care.
I hope we’re working towards a strategically-led, evidence-based and collectively-owned set of budget proposals for the next five years. Wouldn’t it be incredible if central government could do the same?
