Public Finance and Public Policy

Topics: Tax, Public finance, Macroeconomics Pages: 10 (2877 words) Published: April 30, 2013
Critically analyze how successful the British government’s use of Spending Reviews has been as a way of making government more “strategic”

Governments around the world every year are trusted with the task of efficiently and effectively managing taxpayers money. It is their responsibility to fairly allocate resources and stabilise the macro-economy with an overall aim to improve human wellbeing. One such process to allocate resources in the UK is called the Spending Review (SR). SRs were introduced in the UK when the New Labour government came to power in 1997. “They set firm and fixed budgets and departments then decide how to manage those budgets” (HM-Treasury). The UK enjoyed a period of economic growth from this time, whilst more recently has experienced a period of austerity, which resulted from the 2007 financial crisis. This essay aims to critically analyse whether SRs and other financial planning processes are a way of making government more “strategic”. This first section of this essay will outline why Labour thought it necessary to make reforms and introduce the multi-year SR budgeting programme. The second section will discuss whether such reforms helped to make government more strategic through the period of economic growth (1998-2007) and then through the period of austerity (2008-Present). My opinions, ideas and conclusions throughout will draw from a variety of public government data such as Public Expenditure Statistical Analysis (PESA), HM-Treasury archives, personal accounts, blogs and online news articles.

Pre 1997 - The Public Expenditure System

The old spending system was known as the Public Expenditure Survey. Based around a total expenditure figure know as the ‘control total’, the system was central in planning and controlling public expenditure running up to 1998. Surveys took the form of a series of bilateral negotiations between the Treasury and each spending department. As outlined by John Major it was a marathon exercise. “There was not simply the period of negotiation in September and October, but a continuous one” (Thain and Wright, 1992, pp6). Firstly this made it difficult for the government to make strategic decisions on the overall level of public spending and on the priorities within the total. Secondly the system was not divided into current and capital spending meaning that, if budgets were tight, departments might were tempted to cut back on investment to meet more pressing needs such as public sector workers’ wages. Thirdly if departments did not spend their per-year allocated money, they were not able to carry it forward which understandably led to inefficient end of year surges (Crawford et al, 2009). An anecdotal account from a relative working in an education department in 1997 recalls, “We became creative in our accounting methods so surplus monies from one year’s budget were able to be legitimately carried into the next. This was often achieved by billing in one year for staffing in the next” (Greenwell, 2012).

1998 Comprehensive Spending Review

In 1998 Labour undertook a Comprehensive Spending Review (CSR) to decide future spending commitments and to implement the key spending reforms. Gordon Brown the Chancellor of Exchequer summarised, ‘The first innovation of the Comprehensive Spending Review is to move from the short-termism of the annual cycle and to draw up public expenditure plans not on a one year basis but on a three year basis . . . the review's second conclusion is that all new resources should be conditional on the implementation of essential reforms, money but only in return for modernisation.’ (Brown, 1998). The key reforms included; the implementation of a fiscal strategy, the separation of Total Management Expenditure (TME) into Department Expenditure Limits (DEL) and Annually Managed Expenditure (AME), the introduction of 3-year Spending Reviews (SR) and the introduction of Public Service Agreements (PSA).

Their fiscal strategy was...
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