Close to the edge

April 23, 2012 by
Filed under: Credit crunch, Politics 


I remember many, many years ago an announcer on a Radio 4 comedy programme starting an item like this: ‘Once, in a small village just outside France’. The subtle joke being, of course, we need to know what country a village is in before it can be narrowed down by which other country is close by.

I was reminded of this by the announcement this morning that the Treasury will require all Whitehall departments to identify 5% of their spending which will be the first call for cuts should an unexpected need for funds emerge after the budget has been set. Presumably this means there will be a swathe of public service workers who will live in a place just outside extinction.

In Danny Alexander’s speech, which was a powerful restatement of the Coalition’s commitment to deficit reduction, there was no indication of whether the new system is being adopted based on successful practice elsewhere. This is a pity because on the surface of it the proposal could have many fascinating consequences.

It could – and perhaps should – be possible to put a whole departmental budget in priority order, starting presumably with spending which is the direct result of legal requirements and then moving onto spending which is of critical strategic importance and so on. From the low priority end up, if there is an expendable five per cent of activity, presumably there is another five per cent which narrowly escapes the same fate.

Clearer prioritisation may be valuable but don’t underestimate the complexity. For example, because many expenditure items are related to each other, the candidates for the expendable five per cent are likely to be biased towards two areas: on the one hand, self-contained items which can more easily be subject to an immediate cut and, on the other hand, items like staff costs where proportionate, salami-style, cuts can be made across the piece by, for example, not filling vacancies. This could mean it is less the content and more the form of spending items which makes them vulnerable.

Perhaps I am simply being obtuse, but is the vulnerable five per cent a rolling budget item? Whilst normal contingency funds sit in the budget all year waiting to be allocated should the need arise; what happens if the unexpected demand to use the earmarked five per cent occurs in budgetary month eleven, when presumably only about 10% of the total departmental budget remains unspent, will it mean a fifty per cent cut in what’s left?

Like any other large organisation Whitehall budgets are subject to various forms of gaming. Indeed it was partly in response to gaming around contingencies that today’s announcement was made. But a new form may now emerge. If I were a minister or permanent secretary and keen to protect my budget in the face of an unexpected call on funds, I would be very tempted not to put a questionable item in the five per cent but things which are politically sensitive, for example something the Prime Minister is on record pledging to protect.

And what will be the impact on those who rely on wages or grants which fall into the near extinction zone? Given their vulnerability is a consequence not of their own actions but of unexpected events beyond their control, will they plough on regardless, albeit suffering more than their share of sleepless nights? Or will they work tirelessly to try to convince officials and ministers to push them up the queue and relegate another area. Could we see a monthly Whitehall equivalent of the sing-off on X Factor as jeopardised activities suddenly move up the ratings while former star performers are punished for having an off day?

On reflection, having, albeit briefly, considered the case for telling various RSA staff that what they do is the least valuable of our activities, and that they should remain vigilant for the possibility that failure, fraud or flooding will lead to their immediate redundancy, I think I am tempted to stick to the boring old system of having a contingency line in the budget. There is a risk come year-end that managers will try to raid an unspent fund, but I guess I trust my budget holders more that Treasury ministers appear to trust theirs.

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