Select Committee on Treasury Appendices to the Minutes of Evidence


Memorandum from Professor Colin Talbot, University of Glamorgan

  This note deals with the role of the Treasury from one particular perspective—the measurement, management and reporting of public services performance.

  The advent of the new (supposedly three-year) Spending Review/Public Service Agreement (SR/PSA) process to replace PES is a radical step that has highlighted issues about the roles of Treasury and Cabinet Office in relation to public performance.

  This is not intended to be a fully worked out submission for a new set of roles and structures but to raise some possible options.

  There are far wider issues about the new SR/PSA process and content that is being dealt with in a separate paper to be submitted to the main Treasury Committee. Suffice it to say here that the SR/PSA process so far represents a half-finished revolution which needs to be taken much further if it is to succeed in modernising, democratising and opening up the way in which Britain deals with our public expenditure and public performance decision-making. There is a real opportunity here to create a truly modern system and break with the inertia and unnecessary secrecy of the past.

  There are of course counter-arguments, for example that public spending and performance target setting are (a) the responsibility of the executive and (b) have far reaching consequences on macro-economic policy (and in the past have even influenced short-term fluctuations in the markets). The first argument is true and what is being proposed here is retaining the ultimate decision making in the executive but improving the processes by which those decisions are arrived at (which a three-yearly process permits). The second argument is undermined by the government's own policies on Fiscal Stability. These, if adhered to, mean that the broad envelope of public finances is known well in advance. The publication and open discussion of proposed new spending and performance plans would further reduce any danger of the ultimate decisions causing "waves".

  The Civil Service reforms of the past two decades have so far failed to fundamentally change the culture of the "Whitehall village" which continues[1] much as it was described more than 20 years ago[2]. The combination of constitutional and systemic changes introduced since 1997 and some of the structural and systemic changes started in the previous decade (especially agencies, resource accounting, and performance measurement and reporting) makes a real revolution not only possible but even more necessary.


  Earlier discussions at the Committee highlighted the different roles that Treasury plays—as an economic ministry and as a finance ministry. In addition, they identified two sub-roles within the finance ministry role: public finances and public performance.

  It would be useful to define these roles in even more detail:

  A.  Economics ministry role

    1.  Macro-economic policy—analysis and advice

    2.  Macro fiscal policy including taxation and fiscal stability

    3.  International finance

    4.  Financial regulation

  B.  Finance ministry role

    1.  Public expenditure

    2.  Financial management policy and operations

    3.  Financial reporting policy and operations

    4.  Financial audit policy

    5.  Performance targeting and reporting

    6.  Performance audit policy

  There are several areas where the boundaries—including boundaries with the other two key players, DTI and Cabinet Office—overlap and could potentially be drawn differently.

    —  Economic policy overlaps between Treasury and DTI (A1; A3; A4)

    —  Financial and (implied) public policy overlaps between Treasury and Cabinet Office (B1; B2)

    —  Performance of public services overlaps between Treasury and Cabinet Office (B5; B6)

  It is clear that the introduction PSAs "represent a fundamental change in the accountability of government to Parliament and the public" as the PSAs White Paper claims. This could be expected to have a radical impact on the way in which the Treasury does business.

  Treasury has always had, as they admit in their evidence, an implied role in public policy through the budgetary process. Decisions about what does or does not get funded—under PES or SR/PSA processes—carry implications for policy, although clearly Treasury does not "determine" policy. In the past this role has been largely implied and hidden. The advent of the SR/PSA process has made the role both more powerful and more explicit, although the detailed process remains hidden.


  In their supplementary memorandum of evidence to the Sub-Cabinet Committee (Annex A) on "Responsibilities" it is reported that the responsibility for the Treasury Objective 3 "Improving the quality and cost effectiveness of public services" lies with the Public Services Directorate (PSD).

  It goes on to say that there are a number of cross-cutting teams within PSD, covering:

    —  general expenditure;

    —  RAB;

    —  public sector pay;

    —  and the secretariat for Public Sector Productivity Panel (PSPP).

  Alongside these sit the individual spending teams.

  What is striking about this is the absence of a cross-cutting team dealing specifically with the issues raised by PSAs and other performance systems. The secretariat and Public Sector Productivity Panel are merely advisory and ideas generating structures. In terms of developing and managing the whole PSA system this has not been undertaken by a specific cross-cutting team, as could perhaps have been expected, but by the General Expenditure Policy team[3]. Given the supposed importance attached to PSAs it seems curious that Treasury seem to have so few specific resources devoted to policy and practical development and evaluation. In fact it seems there has been no structural changes as a result of PSAs, which seems extremely odd.


  The advent of the three-year Spending Review/Public Service Agreements system to replace PES has surfaced a number of latent issues about the role of the Treasury.

Structural reasons—role conflicts

  As has been pointed out frequently by others, the notion of putting the finance department in charge of corporate strategy would be a strange one in the private sector. While this argument has some validity it should be remembered that we are not dealing with the private sector but with public services and finance, where issues of public money and its use is surrounded by a host of sensitivities and constraints.

  Nevertheless there is an obvious tension between the roles of Treasury-as-finance-department and the Prime Minister's office/Cabinet Office-as-chief-executive. The place where this is most acute is over issues of public sector performance where there is frankly a mess—eg Cabinet Office is responsible for setting broad policy and collating performance data from agencies and NDPBs on the one hand and Treasury responsible for the same for departments. These roles need rationalising.

Systemic reasons—modernising decision-making

  The SR/PSA system, as we make clear in our submission to the main Treasury Committee, offers a unique opportunity to put in place a genuinely radical change in UK public finance and performance decisions.

  In brief, the three-year SR/PSA cycle ought to offer the possibility of developing something analogous to the US's annual federal appropriations process, although on a more consultative rather than permissive model. A cycle of publishing spending and performance reports alongside draft spending and performance plans could lay the basis for a more open process, including a substantial role for Parliament (through the Select Committees) in scrutinising plans and facilitating input from key stakeholders. Final decisions could then be based on much more open, consultative and inclusive debates and are less likely to suffer from some of the "group-think" mistakes of the past.



  The first and by far the biggest question is whether, given the changed role of Treasury since the independence of the Bank of England and other changes the economic and finance roles ought to now be split. This is not the central concern of this evidence but there is a strong logical case for making such a split.

  Whether or not such a change is made the roles of Treasury and Cabinet Office in relation to public finance and public performance need to be clarified to provide the right level of support and expertise to this vital area. In the options that follow "Treasury" refers to either the existing structure or to a separate Finance Ministry.

Option 1

  All responsibility for public service performance issues—including PSAs, SDAs, agencies and NDPBs—are transferred to Treasury.

Option 2

  All responsibility for public service performance issues—including PSAs, SDAs, agencies and NDPBs—are transferred to Cabinet Office.

Option 3

  A new joint body made up of Cabinet Office and Treasury officials is established to support EDX and take responsibility for public service performance issues—including PSAs, SDAs, agencies and NDPBs.

  It seems to me that Option 1 is both unfeasible and more importantly undesirable as it would represent far too great a concentration of power in the Treasury (which is not, after all, the "CEOs" ministry, however much some might like to think so).

  Option 2 would produce—as Treasury officials themselves pointed out—an institutional tension between Cabinet Office and themselves. Some may not regard this as necessarily a bad thing, as it would at least act to introduce a new "check and balance" mechanism into the executive. However, it would inevitably lead to something like Option 3, as there would have to be some mechanism for resolving conflicts.

  Option 3 would therefore seem the logical choice—developing a new joint mechanism for managing public performance policy and practice. Something like an:

"Office of Performance and Accountability" (OPA)

    —  which had a role in developing broad approaches to public performance measurement, reporting and management;

    —  organised the process of liaison between Cabinet Office, Treasury and Parliament over each Spending Review/PSA round; although EDX would remain the political-side of the decision process, supported by the OPA;

    —  took responsibility for collating and publishing central government performance information (from departments; agencies and NDPBs);

    —  developed the executive side policy towards performance audit (in conjunction with whatever new audit arrangements emerge from current reviews).

  There may be an additional issue here about the role of the spending departments. The idea of creating more "joined-up" government requires a mechanism for the management of policy processes and resource allocation across government. For Treasury to play that role on its own seems both undesirable and unfeasible. For Treasury and Cabinet Office to do it jointly makes more sense, but could be dysfunctional in excluding spending departments who would inevitably be "second best" placed to participate. The OPA should therefore perhaps be best seen as a "tri-partite" body with participation of staff from Treasury, Cabinet Office and spending departments. Most crucially it would also therefore take on an extra role of:

    —  Co-ordinating cross-cutting Spending Reviews and PSAs.


  A structural change along the line suggested above would allow for a far more developed, open and participatory decision-making process as well as better co-ordination of performance policy and reporting.

  The facilitative role would permit the development of:

    —  A top-level process of bidding, consultation, scrutiny and revision of SR/PSA proposals between departments, Cabinet Office, Treasury and crucially Parliament.

    —  Encourage departments to develop specific consultation processes appropriate to their own areas, key stakeholders and the public.

    —  Enable cross-cutting reviews to be conducted in an open way (as already proposed by the Performance and Innovation Unit Report "Wiring it Up").

    —  Develop a better-informed and more sophisticated public debate about allocative decisions within broad public spending limits set by government policy (through the Treasury).

    —  Allow for pre-decision audit of proposals (along the lines of the pre-Budget audits).

  All of the above would mark a step-change in the way in which both the debate and decision making process of allocating public resources could be conducted. It would introduce a truly modern, open and involving system for a stakeholder society of the 21st century.


  While members of the Committee may not necessarily accept the specific ideas speculatively advanced here, it is difficult to ignore the compelling case for a fundamental review of the role of the Treasury. Leaving aside the "finance ministry" debate, the more explicit role in deciding priorities and policies for spending areas developed by Treasury as a consequence of PSAs requires a fundamental review of its role. This cannot be undertaken without looking at the roles of Cabinet Office (including No 10) and the spending departments nor of Parliament itself. It would seem time for a Fundamental Review of the Treasury.


  Heclo, H and A Wildavsky (1981). The Private Government of Public Money (2/e), Macmillan.

July 2000

1   See, for example, Sir Michael Bichard's remarks in "The Stakeholder" magazine last year. Back

2   See (Heclo and Wildavsky 1981). Back

3   In questioning of Treasury officials before the Sub-Committee (eg Q60-68) there seemed to be a deliberate attempt to avoid the issue. Back

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