The Government’s Financial Management Review envisaged a new strategic role for Whitehall’s finance function. Two years on, Julian McCrae looks at progress, prospects and what other reform initiatives can learn from this experience.
The Financial Management Review (FMR) aimed to move the Government’s finance profession’s focus from financial reporting (all those annual accounts that most of us struggle to interpret) to management accounting (providing information and analysis to help the managers make better decisions).
There was a degree of sceptical optimism around it – optimism because the report was a positive step; scepticism because HM Treasury’s record in developing Whitehall’s broader finance function was weak, to say the least. Thankfully, it is the scepticism that has been proved wrong.
Sharon White, then the Treasury’s Director General (DG) of Public Spending, and Richard Douglas, then Head of the Government Finance Profession, set out the conclusions of the FMR at the Institute for Government in 2014. These included strengthening the profession’s leadership, generating better analysis into the costs and value of activity and improving the influence of management information on decision making. These reforms have developed apace, with the Treasury – including Permanent Secretary Nick Macpherson – standing full-square behind them.
One of the lessons of successful change within Whitehall is that it must be relevant to the needs of departments. In the case of the FMR, the changes have been led by directors general in departments other than the Treasury – rather than being invented within the Treasury and cascaded down to a sceptical world. This has given the resultant action plans a sense of shared endeavour that is often missing from other Whitehall reforms.
Another crucial success factor was the appointment of David Allen, the director in charge of implementing the FMR, to run the 2015 Spending Review. Linking the FMR with the Spending Review rightly showed how developing the finance function will be essential to delivering the efficiency agenda set out in the Spending Review (the “e-word” was used over 50 times in the Spending Review publication).
Leadership and action plans are all very good, but these have to be translated into new ways of doing things and the new institutional arrangements that will support this. Allen sets out some of these developments in a recent Chartered Institute of Management Accountants (CIMA) publication. There will be a new Finance Academy, developing finance professionals and ensuring they have the skills to operate in the political world of Whitehall; new targets to improve financial forecasting; and a new Costing Unit within the Treasury.
The Costing Unit will use standard financial management techniques to better understand how inputs (for example, the cash for running our border security) translate into outputs (such as seizing drugs imports) and outcomes (such as preventing harm from drug use and sale). This analysis is a crucial part of understanding how to get more out of an increasingly constrained public purse (for instance, investing in a particular technology to improve detection).
The way the Costing Unit is being implemented is of broader interest for those looking at improving Whitehall. Two key things stand out:
- Its design aims to gain the trust of departments. Its staffing will involve secondments from the departments and bring in technical skills from outside the civil service. The idea is that not only will departments gain insights from the costing work, they will also get more highly skilled people returning from secondment.
- Its costing work will be done on a cross-organisational basis. With finance professionals in different organisations speaking in the same terms and having the understanding of the issues, the profession can act as ‘functional glue’ to bring greater coherence to decision making. This does not solve the problem of silos, but it helps make them a lot less harmful.
The FMR reforms have become well established over the past two years. All too often in the past however, Whitehall reforms have failed to embed themselves, simply limping on and eventually being closed down. With both Nick Macpherson and David Allen moving on from the Treasury, it’s important that the FMR manages this crucial transition.
As our previous work with CIMA and Deloitte has shown, historically Whitehall’s leadership has not demanded the kind of analysis from finance professionals that is standard in other sectors. It is vital that a change of personnel in the Treasury does not allow Whitehall to slip back into this dangerous complacency.
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