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 High-level agreements/ plans 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 Objectives 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 Metrics Actions ~1,200 Actions * = 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 Outcome 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?