TREASURY CONTROLS (1997-98/35)
Memorandum by HM Treasury
1. The Treasury has been examining the controls
it exercises over departmental spending decisions to assess which
might sensibly be simplified or discontinued in the interests
of improved accountability and more effective working in departments
and the Treasury. This memorandum seeks the PAC's views on a number
of recommendations resulting from this examination.
THE GENERAL
APPROACH
2. In principle, Treasury approval is required
for all spending decisions by departments. In practice,
it would not be sensible—indeed, it would not even be possible—for
the Treasury to be involved in all such decisions. So it has always
delegated to departments the authority to spend money within defined
limits and subject to various conditions and controls. Examples
of such controls include the need for specific Treasury approval
for spending decisions which would put pressure on Estimates provision
or set a potentially expensive precedent. There are many other
controls as well.
3. This array of controls does not promote good
decision-making and effective control over public expenditure
if it is at too-detailed a level. Nor does this type of Treasury
involvement always sit comfortably with a framework for accountability
laid down by the Treasury which imposes on Accounting Officers—normally
the senior official in each department—"a personal
responsibility for the propriety and regularity of the public
finances for which he or she is answerable . . . and for the efficient
and effective use of all the available resources". We have
therefore been examining Treasury controls with a view to making
changes designed to improve decision-making and accountability
in departments, while enabling the Treasury to focus more effectively
on matters of strategic concern.
THE ITEMS
CONCERNED
4. The annex to this memorandum sets out our
proposals to change five controls where, because of the Committee's
past or present involvement, its formal approval is sought. These
are the controls on gifts; losses and special payments; contingent
liabilities; fees and charges; and Treasury Minutes. The annex
also sets out our proposals to raise various reporting thresholds—the
thresholds above which certain types of financial transaction
need to be reported to Parliament. Is the Committee content
with these proposals, please?
5. In addition, the annex:
— notifies the Committee of a transfer
of responsibility for approval of staff benefits paid by departments
and NDPBs from the Treasury to, respectively, the Office of Public
Services and sponsor departments;
— explains the considerations which
have led the Treasury to decide to discontinue or simplify its
controls concerning single tendering, financial memoranda for
smaller executive NDPBs, and the rules on seeking specific legislation
for new and continuing services.
6. For convenience the proposed or intended
changes are summarised in a table at the front of the annex.
7. The rest of this memorandum outlines how
the Treasury approaches public expenditure control and discusses
the general rationale for the changes referred to above.
THE TREASURY'S
PUBLIC EXPENDITURE
OBJECTIVES
8. The Treasury's objectives for public expenditure
relate to the need to control spending totals, to secure high
quality, cost-effective public services which deliver expenditure
priorities and policies, and to promote high standards of propriety,
regularity and accountability.
HOW THE
TREASURY EXERCISES
CONTROL
9. The mechanisms used in the Treasury to promote
the Treasury's public expenditure objectives include its work
in devising and managing public expenditure control regimes, planning
spending over the medium-term through annual public expenditure
surveys (although we will not be having one this year), the power—reserved
to the Treasury alone—to present departmental Estimates
to Parliament (seeking Parliamentary approval for most spending
by departments), in-year monitoring of agreed departmental control
totals, and in—year assessment of additional departmental
spending bids. In addition, from time to time, the Government
conducts in-depth reviews of spending programmes, in which the
Treasury is very closely involved. For example, a Comprehensive
Spending Review has recently been launched, involving a zero-based
analysis of each individual departmental spending programme.
10. In order to ensure high standards of propriety,
regularity and accountability, the Treasury appoints Accounting
Officers in each department and places on them a personal
responsibility for ensuring that the public finances for which
they are responsible are well and properly managed. While departments
are given delegated authority by the Treasury to spend most of
the money voted to them by Parliament, they are required to follow
guidance published by the Treasury on good financial management
(as set out, for example, in the financial control handbook called
"Government Accounting"), and need to refer to
the Treasury for specific approval in many cases including spending
proposals which exceed the delegated levels agreed between the
Treasury and individual departments. The Treasury also prescribes
how departmental appropriation accounts—showing how public
expenditure has been spent—are presented.
A MORE STRATEGIC
APPROACH
11. The Treasury has been considering for some
time how it might approach public expenditure control in a more
strategic manner. The aim has been to identify those controls
and mechanisms which are necessary for achieving the Treasury's
objectives most effectively while cutting out those controls which
add little or no value. An associated aim has been to improve
accountability and decision-making by delegating responsibility
for spending decisions to departments except in cases where a
clear case can be made for retaining control in the Treasury.
12. We have focused in particular on the detailed
controls over public expenditure set out in "Government
Accounting". This aspect of our review was conducted
in the knowledge that:
— some at least of the controls set
out in Government Accounting are unnecessarily detailed
and encourage unwarranted second-guessing;
— those working in Treasury expenditure
teams find that much of the detailed case-work resulting form
the requirement to seek Treasury approval in certain cases is
not very productive compared with the other activities described
in paragraphs 9 and 10 above;
— even if it were decided to drop some
detailed controls, departments would continue to be free to consult
the Treasury when they wanted to do so; they would not be left
to operate in a vacuum;
— The National Audit Office and the
Public Accounts Committee provide an extremely effective check
on matters of propriety and regularity, as well as promoting good
value for money through a variety of means. Where appropriate,
the Treasury can gain additional assurance from the effectiveness
of NAO and PAC activities.
THE RESULTS
OF THE
REVIEW
13. We decided first of all that the retention
of many Treasury controls was important for the achievement of
Treasury objectives. In particular, it was essential that Treasury
approval should be required for any proposals which:
— could increase pressure on Estimates
provision;
— set a potentially expensive precedent;
— cause repercussions for others;
— exceed the current delegation threshold
for major capital projects.
14. We also decided it was right that the Treasury
should retain the right to introduce—or reintroduce—detailed
controls on particular departments or in respect of certain types
of transaction if and when we had serious concerns about what
was going on.
15. But we also concluded that a number of the
detailed controls applicable to departments in general did not
promote good financial management and control and should be simplified
or dropped. Some changes have already been made-concerning capital
project approvals, banking, land disposals and finance appointments.
So far as other changes are concerned, we thought it right to
consult or inform the Public Accounts Committee first. These are
discussed in detail in the annex.
PARLIAMENT'S
INTEREST
16. We believe that it is in Parliament's interest
that Treasury control over public expenditure is exercised effectively,
and promotes rather than impedes the achievement of good value
for money and high standards of propriety, regularity and accountability.
We therefore hope the Committee will support the Treasury's efforts
to adopt a more strategic and less meddlesome approach.
17. The Public Accounts Committee will, however,
want to consider the detailed proposals set out in the annex on
their individual merits. In doing so, we hope it will pay regard
to the following benefits which, we believe, will result from
our proposals:
— improved accountability from
eliminating unnecessary Treasury second-guessing. There will be
greater clarity about who took the key spending decisions and
why. There will, for example, be less scope for a department to
say that "we wanted to do x, but the Treasury wanted to y,
so we ended up doing z". It will therefore be easier to hold
to account those that took the key decisions, thus ensuring a
fuller and clearer explanation of what occurred;
— better decision making (and
hence better use of resources by departments) by aligning more
closely responsibility for decision-making with accountability
to Parliament. Departments will take decisions with greater care
if they know that responsibility for such decisions rests unequivocally
with them. For example, there will be less scope for a department
to say "we were not sure whether to do x or y, so we consulted
the Treasury to let them decide" in situations where the
department concerned was the only party that knew all the facts
and was in the best position to take the decision;
— better use of resources within
the Treasury since we find little scope for adding value in administering
many of the detailed controls. Their removal or simplification
will allow us to concentrate more effectively on achieving our
own objectives, including the objectives for public expenditure
set out in paragraph 8. It will in particular allow the Treasury
more time to focus on the more productive of those activities
outlined in paragraphs 9 and 10;
— better relations between the Treasury
and departments because, while departments accept the need
for the Treasury to be involved in strategic decisions
affecting public expenditure control and overall value for money,
they tend to regard Treasury involvement in less important decisions
as unnecessary meddling, and inconsistent with trends in other
areas (such as pay and grading) where delegation to departments
has already taken place. Moreover, it is difficult to argue that
departments should delegate responsibility within their own organisation
(e.g., to agencies) and empower more junior staff while insisting
that the Treasury should retain detailed controls over minor spending
decisions.
REPORTING THRESHOLDS
18. Various types of financial transaction above
a certain value—the "reporting threshold"—need
to be reported by departments to Parliament. For example, new
contingent liabilities in excess of £100,000—i.e.,
cases where the Government may (though it is not certain)
have to make a payment at some stage in the future in excess of
£100,000, possibly as a result of a guarantee or an indemnity—need
to be reported to Parliament in a departmental minute. Notification
needs to be 14 days in advance of actually incurring the contingent
liability so that Parliament has an opportunity to express a view
on it. A similar sort of arrangement applies to gifts of an unusual
nature or whose value exceeds £100,000. There are a number
of other examples as well.
19. In some cases, the value of the reporting
threshold has not been increased for some years with the result
that the number of cases reported to Parliament tends to increase
over time. And the reporting thresholds are generally very low
bearing in mind the total for public expenditure and revenue (over
£300 billion for each). Increases in such thresholds would
represent a considerable convenience to departments (since the
least important cases would no longer need to be reported) while
ensuring that Parliament would still be informed of all significant
transactions of the type concerned. There is also a certain logic
in aligning the reporting thresholds to parliament with the proposed
thresholds for seeking Treasury approval (where this applies—e.g.,
in respect of contingent liabilities).
20. The annex contains—and explains—our
proposals for raising reporting thresholds. Is the Committee content
with these proposals please?
CONCLUSION
21. Is the Committee content, please, with
the proposals set out in the annex concerning gifts, losses and
special payments, contingent liabilities, fees and charges, and
Treasury Minutes? And is the Committee content with our proposals
to raise certain reporting thresholds?
HM Treasury
30 October 1997
| 
