Performance & Accruals Budgeting OECD Senior Budget Officials Meeting, Vilnius

1. Performance & Accruals BudgetingOECD Senior Budget Officials Meeting, Vilnius David Dipple Parliamentary Estimates Clerk, HM Treasury, UK 20-21 March, 2007

2. Performance and Accruals Budgeting Departmental Expenditure Limits Annually Managed Expenditure Admin Programme Resource Resource Capital Capital DEL: Policy driven spending (£330bn in 2006-07) AME: Demand led spending (£230bn in 2006-07)

3. Performance and Accruals Budgeting • For information purposes we also use: • Spending by function (education, defence, etc) • Spending by region • Spending by economic activity (pay, grants, etc) • Spending by sector (central/local govt, public corp) • Funding authority

4. Performance and Accruals Budgeting • The UK moved to accruals budgeting in 2001-02 • New accruals data was in AME for first two years • It was moved into DEL in 2003-04 • Allocated at organisational level (but some provision is allocated to cross-cutting functions across-departments) • Performance budgeting introduced in 1999-2000 • Provide a focus on outputs (‘delivery’) • Some are shared between departments (eg, criminal justice) • Number of targets has fallen (600 in 1998, 110 in 2004)

5. Performance Budgeting • Choose targets carefully: • Outcome focussed • Achievable • Readily measurable • Relevant • Timed • UK currently has 110 for 20 departments The UK experience

6. Performance Budgeting • Where targets align with public & political priorities • All parties are signed-up and understand the delivery mechanism • Education targets seem to have worked well, eg: • ..an increase in the proportion of of those aged 11 meeting the standard of literacy) from 63% to 80% by 2002 • ..an increase in the proportion of of those aged 11 meeting the standard of numeracy from 62% to 75% by 2002 The UK experience: what works

7. Targets set Performance Budgeting

8. Performance Budgeting

9. Performance Budgeting

10. Performance Budgeting The UK experience: what doesn’t work • Where targets aren’t genuine priorities • Perverse incentives: • National Health Service 4-hour A&E wait time; • Access to GP within 48 hours. • Lack of measurement data: • Reducing childhood obesity • Where exogenous risks impact on outcomes

11. Performance Budgeting The UK experience: what doesn’t work • Where the target is unclear • Home Office: ‘Reduce race inequalities and build community cohesion’, • FCO: ‘Play a leading role in the development of the European Security Agenda, and enhance capabilities to undertake timely and effective security operations, by successfully encouraging a more efficient and effective NATO, a more coherent and effective European Security and Defence Policy operating in strategic partnership with NATO, and enhanced European defence capabilities’

12. Accruals Budgeting The UK experience • Accruals applies to expenditure but not to revenue • Continue to control cash – ‘near-cash’ controls introduced in 2005-06

13. Accruals Budgeting • Inter-generational fairness • Inform decision-making • Provide incentives • Identify cost of decisions The UK experience: the purpose

14. Accruals Budgeting The UK experience: what is needed • Technical understanding • Monitoring and control mechanisms • Freedom to make, and benefit from, decisions:

15. Accruals Budgeting • “Shifting to the accrual basis transfers budgetary power from elected leaders to technical experts” (para 81) • Tinkering: • Capital grants • Impairments The UK experience: issues