Controlling public spending

Departments manage their resources in different ways – direct management, sponsorship of arm’s-length bodies (ALBs), system and grant funding, and markets and contracting – which have implications for their ability to control spending.

While most departments have a single dominant resource management model, spending is often allocated through more than one channel.

How departments manage their resources differs markedly across Whitehall.

How government departments controlled their spending

Direct management

Some Whitehall departments have direct control over how resources are deployed via line management of staff, and provide services directly to the public. For example, DWP runs job centres, while MoD spending on pay and pensions for civilian and military staff is a considerable part of its budget and directly managed. Even in mainly directly managed departments, some spending runs through other models: for example, the Debt Management Office handles the issuing of UK government bonds for HMT, and Defence Equipment and Support (DE&S) manages a vast range of complex projects to buy equipment for MoD.

Sponsorship of ALBs

Some departments pass resources to bodies they do not directly manage but whose objectives and governance they set and oversee. DCMS channels its spending through a range of bodies covering the arts (e.g. Arts Council England) and sport (e.g. Sport England). Since the Health and Social Care Act 2012, most of DH’s spending is through NHS England and Public Health England.

Number of Non-departmental Public Bodies (NDPBs)

Many governments come to power promising a ‘bonfire of the quangos’, and the number of non-departmental public bodies (NDPBs) has fallen considerably: from 2,167 in March 1979 to 399 in March 2016. ALB reform should be more than a numbers game, and indeed, the Coalition introduced other reforms around accountability and efficiency.[1]

Theresa May’s machinery of government changes in July shifted the oversight of some ALBs: BEIS inherited oversight of 27 NDPBs, four non-ministerial departments, six executive agencies and eight other bodies; DfE inherited eight NDPBs and one executive agency on top of what it was already responsible for; and ministers at DIT are now responsible for UK Export Finance and its NDPB, the Export Guarantees Advisory Council.[2]

System and grant funding

Departments can directly award discretionary grants to individuals or organisations, or provide resources for a set of bodies in the wider public sector which they do not directly manage or sponsor. DCLG provides grant funding to local authorities, which in turn is used to fund local services. HO grant funding for the police is the largest single component of overall police budgets. Defra disburses EU funds for agriculture, which accounts for 51% of all EU spending in the UK. The UK Government has guaranteed this funding up to 2020, but there is still uncertainty about this part of Defra’s spending beyond 2020.[3] 

The NAO has previously concluded that ‘there is no central good practice guidance and limited central data to support departments in implementing efficient and effective grant programmes’.[4] Levels of information and transparency were described as varying across departments. This was reflected in the NAO’s report into the high-profile collapse of the charity Kids Company, which had been in receipt of government grants; the report highlighted the different levels of rigour CO and DfE applied to their assessments of the charity. The Government has committed to opening up more grants data as part of its Open Government National Action Plan for 2016-18.[5]

Markets and contracting

Whitehall can directly procure or commission others to act on the Government’s behalf. Since 2010 MoJ has extended its use of contracting to cover probation services and electronic tagging. The continued expansion of academies has led to a growing transition in DfE’s resource model towards funding schools directly. As the number of academies expands, the shift away from funding via grants to local authorities will continue.

The growth of private contracting has generated concerns about the ability of departments to negotiate and monitor costs. In 2013 the MoJ became aware that two contractors (Serco and G4S) had over-billed the department in relation to contracts worth £722m.[6] This prompted a wider review of commercial contracts across a number of departments that exposed similar issues. As the Institute for Government has previously argued, timely and regular publication of key government outsourcing data would complement the big-bang accountability (or ‘scandal accountability’) of parliamentary hearings, and help avoid failures in the first place.[7]