Bolt-On Wonderers: Councils Have Taken a Lot of Flak-Deserved of Not-For Perceived Inefficiency in Financial Management over the Years. Willie Seal and Amanda Ball Report on Their CIMA-Funded Research into Two Authorities' Budgeting Practices to Determine Whether the Problem of Incrementalism Is a Thing of the Past

Article excerpt

Local government has attracted some harsh criticism recently for the schools cash fiasco, inflation-busting council tax increases and alleged reckless job creation (1). But a longer-running problem is that the sector has a departmental attitude to its activities and an incrementalist approach to budgeting (2). There has been a tendency to impose percentage changes across the board, with little attempt to set priorities. Tradition and force of habit dictate that a council's budget this year is likely to differ only marginally from last year's.

Led by the concepts of its "third way", the new Labour government took power in 1997 with a commitment to reforming local government rather than constraining it, as its Tory predecessors had done. Yet this did not mean giving councils complete freedom from central control. Although Whitehall abolished the much-disliked compulsory competitive tendering system and spending caps, it kept its powers to control local spending and required local authorities to deliver services based on the new principles of its Best Value system.

Against the background of this modernisation agenda, our C1MA-funded project conducted empirical research into budgetary practices at two large local authorities facing different economic, social and political pressures. The first authority, "Eastmet", is located in the north of England. It has a declining manufacturing base and high unemployment. The other authority, "Southshire", is located near London. It faces different problems stemming from labour shortages in the public services. We also interviewed officials at the Office of the Deputy Prime Minister and the Audit Commission. Our research has focused most recently on education and social service budgets, which together comprise the bulk of council spending.

Although there has been little explicit mention of budgeting in many of the green and white papers on local government reform since 1997, it is clear that policy-makers are well aware of the organisational, managerial and political traditions in local authority budgeting. So, apart from the ubiquitous "modernising", the other buzzwords that abound in official documents--"integration", "cross-cutting" and "joined-up government"--have implications for the organisational context of the budgetary cycle.

Although not explicitly aimed at financial management, more general modernisation measures have began to affect budgeting practices through organisational changes. The use and perceived legitimacy of performance indicators and audit systems; changes in political and management structures; outsourcing; and new consultation procedures have all challenged the traditions of incremental budgeting.

Although it's not a budgeting system, one of the main post-1997 policy innovations for the public sector was Best Value. This may be compared with earlier attempts at integrating planning with budgeting--for instance, the planning, programming and budgeting system (PPBS) and zero-based budgeting (ZBB). Although Best Value is less ambitious in its inherent value system, the obstacles to budgetary reform do have some similarities with the problems that beset both PPBS and ZBB. But a rigorous inspection regime coupled with new cross-cutting initiatives suggest that the challenge of old approaches to budgeting is greater than ever before.

The most recent initiative has been comprehensive performance assessment (CPA), in which the Audit Commission ranks the corporate performance of authorities rather than simply evaluating individual service areas, as under Best Value. The significance of the CPA framework and the expanded model of audit is that central government uses the resultant assessment as a basis for rewarding good performance and identifying substandard performance. High-performing councils will be allowed greater financial freedom.

Both of our case-study authorities have abolished big departmental structures and adopted small "cabinets': In Southshire, for instance, a single organisational structure and budget for children's services has replaced the old education and social service departments. …