The government is attempting to secure tighter controls on departmental spending by allowing the Treasury to have more control over budgets and force departments to keep five per cent of budgets separate for “reprioritized” spending.
The Treasury believes the current system of monitoring Whitehall expenditure is not good enough. A government publication entitled "Improving spending control said: "There is significant scope for the government to strengthen its approach to monitoring spending and improving forecasting. In many cases, the information that the Treasury and departments use is neither timely nor robust."
Treasury Chief Secretary, Danny Alexander outlined the changes in a speech to the Institute for Fiscal Studies earlier today. He stressed the importance of fiscal discipline in the use of public finances and said that government finances must never be allowed to get into a mess again. He will ask Whitehall to find a further £16 billion in spending cuts, which equates to an extra five per cent of cuts across all government departments.
In his speech to the Institute of Fiscal Studies (IFS), Mr Alexander said: "In an environment of economic uncertainty, with ongoing instability in the eurozone, the UK's large deficit remains a crucial economic vulnerability. It remains a clear and present danger to stability."
He has asked all departments to report their financial accounts monthly in a move he described as radical.
He said: "These new controls are not just a tweak to the Whitehall machine. They are another signal of our unwavering determination to deliver the fiscal consolidation we promised.”
In the 2010 Spending Review, George Osborne announced that the government would save £6 billion in the running of Whitehall departments over four years. This has formed part of the central plank of the government’s economic policy of austerity as it focused on cutting the public sector deficit.
Mr Alexander isaid that the government is making good progress in reducing the deficit and controlling public spending but that more needs to be done and that reforms are needed to make sure the plans are not hindered by unforeseen costs.
The new rules have been put together by the Treasury and finance directors from across Whitehall.
Mr Alexander said the new rules “are designed to fundamentally change and improve financial management across all organisations spending public money.
"From now on, all departments must monitor and share spending information with the Treasury on a monthly basis. And that data must be consistent," he will add.
With regard to the five per cent of funds to be set aside for unexpected costs Mr Alexander said: "Many departments already operate a small 'unallocated provision' in their annual budgets, to meet smaller pressures that arise.
"And, under the new rules, I have asked all departments to 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 is a shared understanding of how it could be paid for."
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