In a speech to the Institute of Fiscal Studies, Chief Secretary to the Treasury, Danny Alexander, reaffirmed the Government’s commitment to its fiscal consolidation and set out new, tougher spending rules to ensure delivery of its spending plans. This ‘adjustment’ comes just one month after the 2012 Budget and the subsequent Finance Bill publication.
He drew attention to a clear and present danger to our stability in the environment of economic uncertainty, with ongoing instability in the Eurozone and the UK’s large deficit remaining a crucial economic vulnerability. He said that carrying on as we were meant accepting that we spend even more on debt interest as a share of public spending, and that fiscal discipline is at the core of good Government and necessary also to deliver fairness.
He felt that the significance of the creation of the Office for Budget Responsibility (OBR) was often underestimated in the UK debate. Historically in the UK, politicians had been tempted to adjust their economic forecasts to suit their policies. So when in autumn 2011 the OBR chose to substantially change its assessment of the damage done by the crisis, and of the spare capacity in our economy, the government could not sweep this uncomfortable judgement under the carpet.
The changes he announced focussed on the ability of Government departments to cushion the impact of external instability on our economy, and to address issues as they arise by being better prepared and from within their own budget capacity. He singled out two aspects that had to change. Firstly, that delegated departmental responsibility for spending could no longer be an excuse to hide information, close the books, or weaken financial management.
Secondly, from now on, all departments must monitor and share spending information, via consistent data, with the Treasury on a monthly basis – for too long financial management in Government has been stifled by poor information sharing and poor incentives. Under the new rules all departments should 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 was a shared understanding of how they could be paid for.
He affirmed that the new measures were not just a tweak to the Whitehall machine, rather a structural shift that would shape Government for decades to come. Never again would politicians be able to fiddle their forecasts in the face of the uncomfortable truth. He emphasised that the rules had been drawn up with finance directors from across Whitehall, and are designed to fundamentally change and improve financial management across all organisations spending public money.
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