Performance budgeting: United Kingdom experience, Julian Kelly, United Kingdom

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  • Performance Budgeting

    United Kingdom Experience

    11th Annual OECD Asian Senior Budget Officials Meeting

    Bangkok, 17 December 2015

    Julian Kelly

    Director-General, Public Spending and Finance

  • Contents

    1. Spending Review

    2. Performance frameworks

    3. Costing

    2

  • A brief history of Spending Reviews

    Prior to 1992

    Public Expenditure Surveys

    Annual bilateral negotiations between Treasury & departments

    1992-1998

    More top-down approach

    Overall control total set each year for next three years.

    Only first year set in stone

    1998-2013

    Separation into DEL/AME and current/capital

    Firm and fixed multi-year departmental budgets set in SRs

    3

  • Anatomy of a Spending Review

    4

    Budget

    Set envelope for period of SR

    Announce key policies: e.g. pay

    Zero based capital review

    Set priorities i.e. spending on health, schools and overseas aid

    2-3

    months

    Guidance to line ministries, including planning assumptions

    Initial departmental settlements agreed and made public.

    Bilateral discussions begin

    Cabinet Committee (PEX) constituted

    End Period

    Early departmental settlements (announced)

    Publish spending round (Resource & Capital and headline departmental allocations

    Key Features

    Chief Secretary

    lead

    Chancellor in

    reserve

    PM final arbiter.

  • Key Reflections

    In the UK, the Finance Ministry runs the timetable/process and provides

    guidance on the spending review framework

    Setting the key parameters and providing clear guidance at the start

    manages expectations and provides certainty for departments and markets

    Success of zero based review for allocating capital investment

    Engagement with a broad range of stakeholders

    Planning ahead: start work early on the next review

    5

  • Spending Review 2015

    6

    In the Spending Review this autumn, the government will set out how the remaining

    consolidation will be delivered (on top of the 17bn of consolidation set out at this Budget) and

    set departmental budgets - Summer Budget 2015

    A country that lives within its means: Spending Review 2015 published in July sets out the

    governments priorities for Spending Review 2015 and how plans to deliver the overall 20 billion

    of consolidation will be developed in the coming months

  • Planning assumptions: HM Treasury invited departments to set out

    plans for reductions to their Resource budgets and asked to model two

    scenarios, of 25% and 40% savings in real terms, by 2019-20

    Public Sector Efficiency Challenge: public sector workers submitted

    ~ 20,000 ideas, leading to policy suggestions for the SR

    Engaging experts through the process: external experts and Civil

    Service leaders working with HMT and departments on big spending

    questions

    Spending Review 2015: features

    What Works centres: during the last Parliament the government established a

    network of What Works centres to produce independent analysis on the impact and

    cost-effectiveness of major areas of public spending. The government will draw on

    this expertise for the SR.

  • Contents

    1. Spending Review

    2. Performance frameworks

    3. Costing

    2

  • Context: our current performance framework is facing

    a number of challenges

    In 2010, the government reformed performance management

    o Abolished PSAs, replacing them with Departmental Business Plans

    The context/ environment has changed significantly in the last 5-10 years. The

    financial environment is more constrained, the low fruit been picked, and performance frameworks need to be adapted accordingly to ensure that money is spent in the most

    effective way

    A number of challenges have arisen since 2010:

    o BPs are not an effective performance management tool o Not linked to spend, and do not track VfM

    The current environment is a good opportunity to reassess & reform performance

    management

  • Broad structure of framework has remained similar,

    with a decreasing number of targets

    1998 2000 2002 2004 2007 2010

    Blair Brown Coalition

    Public Service Agreements (PSAs) Business

    Plans

    Departmental

    Cross-cutting

    Total Hig

    h-le

    vel

    ag

    ree

    me

    nts

    / p

    lans

    Service Delivery Agreements Dep. Delivery Plans Dep. Business

    Plans

    25 18 19 18 0* 17

    3 5 4 2 30* 0

    28 23 23 20 30 17

    Obje

    ctiv

    es

    Departmental 89 103** 95

    Cross-cutting 2 0 7

    85

    8

    114

    22

    142

    5

    Indicators

    Targets

    >600 >160 >130 ~500 153 269

    >600 160 130 110 ~50 0 Metr

    ics

    Actions ~1,200 A

    ctio

    ns

    * = At least 20 of these 'Cross-cutting' objectives had a natural lead department and could potentially have been recut as departmental priorities; ** = Departmental Strategic Objectives, developed later and not stated in PSA document Sources: PSA documentation 1998-2007, Departmental Business Plans (http://transparency.number10.gov.uk), IU analysis

    Decrease

    Stable

    Stable

    Stable

    Stable

    Stable

    Decrease

  • We have assessed BPs and PSAs against a number

    of criteria

    Inform spend X Not linked to spend or input costs

    X Not linked to efficiency

    X Not linked to spend or input costs

    X Not linked to efficiency

    Clarify objectives

    Linked to overall coalition objectives

    X Not always aligned to dept. objectives

    X Not linked to spending goals

    Key objectives of the government made clear

    X Not linked to spending goals (time of plenty)

    Promote cross-

    dept working

    X Some joint actions, but largely siloed by

    department

    Later PSAs were all cross-cutting

    Track performance

    Lower metric tracking allows light administrative

    burden

    X Backward looking, data not timely - not a tool to

    track operational performance

    Timely, used as performance tracker

    X Numerous indicators seen as administrative

    burden

    Identify risks X No early indicators of financial or ops. risk

    X Do not provide for interventions

    Provided strong intervention mechanism if PSA off

    course

    X Not linked to indicators of financial risk

    Increase

    accountability

    Online portal provides transparency, but poorly

    utilised by public

    X Accountabilities clearly laid out, but not directly

    used to hold people to account

    Civil servants & ministers felt directly accountable

    for delivery

    Became increasingly transparent

    Improve outcomes

    for the public

    X More output focused

    X Not significantly used to improve public

    outcomes

    Did incentivise service transformation

    Outcome focused, but often too high level

    Business Plans Public Service Agreements

  • "Customer" needs give us four proposed objectives for the

    revised performance management framework

    Improve

    outcomes

    for the

    public

    Organise MI

    Can we agree a clear set of metrics for the Centre?

    How can we reduce the burden placed on

    departments?

    Track

    performance

    How are government systems/finances performing?

    What is the impact of

    individual policies?

    Inform spend

    How can we allocate spend & resource?

    How can we track spend efficiency?

    Set clear priorities

    What does government intend to deliver?

    What are the key financial & operational goals?

  • There is a range of options for new performance

    management framework

    Light touch

    BPs

    Centre only

    performance manages

    top government

    priorities

    Monthly reporting on

    priorities, with detailed

    metrics applied

    Central intervention only

    ad hoc / when policies

    are performing poorly

    No wider performance

    reporting required from

    departments (spend

    reporting would

    continue)

    No direct link to spend

    Single Departmental

    Plans & Implementation Task Forces

    New systematic, metric

    based framework,

    leveraging BP/PSA

    learnings

    Built around a mix of

    departmental and x-

    government objectives

    Underpinned with

    outcome/output

    indicators

    Strengthened

    governance and

    accountability

    Retain and expand

    online portal

    Regular reporting

    Aligned with SR

    Programme

    Budgeting

    Wholly new reporting

    structure & process

    Budgets appropriated

    to outcomes/outputs

    and programmes that

    will deliver those

    outcomes

    Indicators attached to

    each programme

    Spending

    conversations

    informed by

    performance in each

    area, but not contingent

    on it

    1 2 3

    Performance

    Budgeting

    Budget structured in

    similar, granular way to

    programme budgeting

    Spending decisions

    contingent on good

    performance and

    strong financial

    management

    Strong incentives to

    limit poor delivery

    including spending

    reductions

    4

  • Contents

    1. Spending Review

    2. Performance frameworks

    3. Costing

    2

  • A thorough understanding and interrogation of spend will help meet the

    current fiscal challenge while continuing to deliver public services

    Providing a step change in the understanding of HMG spend by mapping

    financial and operational performance of public services

    Encouraging the considering of spend across organisational boundaries to

    break down institutional silos and leverage x-HMG opportunities

    Acting as a catalyst to identify cashable and efficiency savings to transform public services at the same or reduced level of spend

    Developing new capabilities to areas of high spend, by building HMG

    expertise to deliver improved financial performance.

    Total spend 1-3

    1 2 3

    Outcom

    e

    The Review of Financial Management in Government (Dec 2013) recommended

    that finance not just understand what we spend, but also what we get for it.

    From 2014, the Financial Management Reform team in HMT has been implementing

    this recommendation through a series of costing projects:

  • Questions?

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