eBook - ePub
Public Spending Decisions
Growth and Restraint in the 1970s
Maurice Wright, Maurice Wright
This is a test
Share book
- 174 pages
- English
- ePUB (mobile friendly)
- Available on iOS & Android
eBook - ePub
Public Spending Decisions
Growth and Restraint in the 1970s
Maurice Wright, Maurice Wright
Book details
Book preview
Table of contents
Citations
About This Book
First published in 1980, Public Spending Decisions attempts to answer some important questions regarding public spending and its relationship with economic and financial stringency. By the beginning of the 1970s the expectation of continuing economic growth had become implicit in the attitudes of politicians, administrators, and the public in Britain; likewise, the assumption of the growth of public spending had become embedded in the machinery and processes of both local and central government. How then were the local authorities and government departments affected by the abrupt halt in the growth of public spending during 1970s? How were the decisions made about the allocation of increasingly scares resources? How did the treasury ensured that the spending limits it established were not exceeded and what are the implications of changes in the attitudes of decision makers towards the growth of the public sector? The contributors are distinguished scholars in the field of local and central government. This book is a must read for scholars of public policy, public administration, finance, and economics.
Frequently asked questions
How do I cancel my subscription?
Can/how do I download books?
At the moment all of our mobile-responsive ePub books are available to download via the app. Most of our PDFs are also available to download and we're working on making the final remaining ones downloadable now. Learn more here.
What is the difference between the pricing plans?
Both plans give you full access to the library and all of Perlego’s features. The only differences are the price and subscription period: With the annual plan you’ll save around 30% compared to 12 months on the monthly plan.
What is Perlego?
We are an online textbook subscription service, where you can get access to an entire online library for less than the price of a single book per month. With over 1 million books across 1000+ topics, we’ve got you covered! Learn more here.
Do you support text-to-speech?
Look out for the read-aloud symbol on your next book to see if you can listen to it. The read-aloud tool reads text aloud for you, highlighting the text as it is being read. You can pause it, speed it up and slow it down. Learn more here.
Is Public Spending Decisions an online PDF/ePUB?
Yes, you can access Public Spending Decisions by Maurice Wright, Maurice Wright in PDF and/or ePUB format, as well as other popular books in Volkswirtschaftslehre & Makroökonomie. We have over one million books available in our catalogue for you to explore.
Information
6 From Planning to Control: PESC in the 1970s
DOI: 10.4324/9781003307556-6
PESC is not what it was. What it is, or has become, is less certain. To describe it at one moment in time is to risk being overtaken by the events of the latest crisis or change of direction. Nevertheless, by looking back over the last decade certain broad trends in the development of the machinery for planning and controlling public expenditure are discernible. In this chapter I shall try to show that by the end of the 1970s PESC had become less a process for planning public expenditure in the medium term than a means of restraining the growth in the size of the public sector and controlling the cash flow of spending authorities; that there had been a switch in emphasis from volume or resource planning to cost control, from the use of physical resources to the financing of those resources; and that the approach of the Treasury had become more short term, more ad hoc and more incremental.
In accounting for those changes I shall take 1972–3 as a turning-point. The onset of the energy crisis was not, however, simply a further powerful stimulus to inflationary pressures already present in the economy; it served to generate a wider debate about the use of natural and other resources and the limits to economic growth. In turn this debate began to change attitudes towards public expenditure. Quite clearly planning and controlling public expenditure in an era of persistent and high rates of inflation and unemployment, low productivity and stagnant industrial production is an exercise of a different order from that which the Treasury conducted in the more stable conditions of the early 1960s, when belief in the efficacy of Keynesian demand management for fine-tuning the economy remained as yet unassaulted.
In looking at what has happened to PESC since 1972–3, I shall address two questions more particularly: first, to what extent inflation has made it more difficult for the Treasury and spending authorities to plan and control expenditure; and secondly, as a consequence, the extent to which changes in the structures and processes of making expenditure decisions at the centre have made the planning and controlling of public expenditure more or less rational than it was before 1972–3.
Towards a More Rational System?
Since its inception, PESC has comprised elements of five processes: planning, allocating, controlling, evaluating and accounting. The elements represented and the weight given to them changed over time, reflecting the relative importance attached to them in different economic and financial circumstances by ministers, the Treasury, spending departments and Parliament. As well, changes in emphasis have tended to reflect changes in the ‘state of the art’ in the Treasury and Whitehall departments, and consideration of what was desirable and practicable. In practice PESC has proved both adaptable and durable.
Whether the Treasury and departments ever envisaged that PESC would evolve through steady growth and refinement into a full-blown PPB system is uncertain. There is some evidence of an expectation that this might happen, roughly from the middle of the 1960s to the early 1970s (Bridgeman, 1973). However, PESC’s difficulties with the future costing of inputs and with controlling expenditure precluded innovation on a scale much larger than that of the pilot projects in the Home Office, DES and, later, DHSS. The programme budget structures established there subsequently may be seen less as steps towards PPBS than as ‘adjuncts to PESC’ concerned with the more accurate forecasting of future costs for the annual Public Expenditure Survey (Glennerster, 1975), and with the measurement of ‘inter-mediate’ rather than ‘final outputs’. The programmes structure developed at the DHSS was ‘in something of a muddle’ in the middle of the 1970s (Hurst, 1977, p. 232).
The outline of the five processes below is necessarily a gross simplification of issues of great complexity which interact and overlap, and ignores the political context within which they are located. Nevertheless it will serve as a frame of reference for examining what happened to PESC in the 1970s. The fifth process, accounting, lies outside the scope of this chapter.
- Planning:
- a projection or forecast of the development of the economy over the plan period, usually 4–5 years;
- (b) a projection or forecast of the allocation of resources between investment, balance of payments, public expenditure and privately financed consumption; the taxation and borrowing implications of that allocation;
- resource plans for all spending authorities comprising the public sector for both current and capital expenditure, with statement of to be achieved;
- costing of those plans;
- revision and updating of
- Allocating: deciding between the competing claims of the spending authorities for available resources, and allocating them over the plan period.
- Controlling:
(a) commitment ensuring that allocated resources are committed by spending authorities at the time stipulated in the plan; (b) monitoring controlling cash flows to finance the use of prescribed volumes of resources; (c) verification comparing out-turn and planned expenditure at programme and sub-programme levels and accounting for divergencies; - Evaluating:
(a) output identifying and measuring the output of the use of allocated resources; comparing actual output with intended output and accounting for the divergence; (b) impact measuring the impact of the outputs; (c) effectiveness evaluating the output and its impact in terms of their effectiveness in achieving broad policy objectives. - Accounting:
(a) audit auditing cash flow to finance expenditure programmes in accordance with parliamentary appropriations; (b) ‘efficiency audit’ examining the economical and effective use of resources; (c) accounting to Parliament and the public explaining and justifying the planning, allocating and use of resources.
With hindsight it is possible to see the first decade following the Plowden Report as a period of steady evolution towards a more rational system of planning and controlling public expenditure (Goldman, 1973; Heclo and Wildaysky, 1974; Diamond, 1975). Whether the 1970s have further contributed to that progression, or have blown the system off an intended rational course, is discussed below. It is of course possible to devise a system with some of the elements of the processes outlined above, but which, because of the organisational behaviour of people in old, revamped and new institutions, and the procedures and practices whereby expenditure business is conducted, fails to produce the degree of rationality anticipated or claimed for it by its advocates. While at any one time PESC may have had some of the attributes of those processes, the system for planning and controlling public expenditure may nevertheless have produced a spurious rationality. To some extent this is what Heclo and Wildaysky claimed in their demonstration of the continuance of traditional bargaining between the Treasury and central departments which appeared little affected by the new language and institutions of PESC, and which resulted in their view in ‘incrementalism to the nth degree’ (Heclo and Wildaysky, 1974). It will be necessary, therefore, to say something about the validity of the claim made for PESC in terms of its operation. At the same time we shall set the planning and control of public expenditure within the broader macroeconomic context which Heclo and Wildaysky largely ignored in their concentration on the political process.
Constraints On Pesc's Rationality
There is no universal criterion for identifying and measuring ‘benefits’ or ‘satisfaction’ which may result from the provision of goods and services publicly. There is no welfare, utility, or social-welfare function which can be used uncontentiously to demonstrate the benefits of allocating a marginal volume of resources to the construction of a new hospital for long-stay patients rather than increasing the real value of old age pensions or supplementary benefits. It is possible to show the opportunity cost of using extra increments of resources in different ways, but ultimately non-economic judgements have to be made about preferred alternatives.
In practice, resource allocation is inseparable from consideration of financial and fiscal policy within the wider context in which decisions are made about the management of the economy (Bevan, 1978). Until roughly the middle of the 1970s the financing of resources allocated to the public sector was largely contingent upon decisions made about the appropriate level of resources allocated or pre-empted by the public sector. That level was itself a product of the demands for the provision of certain levels of publicly provided goods and services, moderated by the government’s view about the need to expand or contract that provision as part of conjunctural policy in running the economy. Where the financing of those programmes through taxation was expected to produce a deficit the government was prepared to agree programmes which resulted in a deficit which had to be financed by internal and/or external borrowing.
Since 1974–5 the largely subordinate role of public expenditure financing has changed. With substantial and annually increasing deficits, the Public Sector Borrowing Requirement (PSBR) rose by 95 per cent between April 1974 and April 1977. If the debate in Whitehall and outside about the relative efficacy of Keynesian and monetarist policies in an era of high inflation, slow growth and high unemployment had not yet been conclusively determined, the Treasury and the Bank of England had increasingly in the latter half of the decade pursued economic, financial and fiscal policies consistent with a monetarist approach – in particular the prescription of targets for the tighter control of the money supply (M3 and DCE), and the attempt to limit the size of the PSBR. In contrast to the 1960s and the early years of the 1970s, the financing of the resources allocated to the public sector or pre-empted by it had become a crucial factor in deciding its share vis-a-vis other claims, for example, private investment, privately financed consumption; and in deciding how those resources are to be allocated within the public sector, for example, decisions to reduce certain programmes, maintain some at about the same level and increase others.
The point being made here is that financial and fiscal considerations are now more important determinants of the total and composition of public sector spending than in the 1960s. They may well as a result transcend, or even make a nonsense of, the claims to rationality of the planning and allocating process. For example, a preferred pattern of expenditure may emerge from PESC, obtain ministerial approval and be published in the Expenditure White Paper. Subsequently it may become necessary to reduce the size of those programmes in order to achieve stipulated targets for the PSBR or the money supply. This is what happened to the plans announced in the 1976 Expenditure White Paper. In July 1976 programmes for 1977–8 were cut by £1 billion to further the objectives of reducing the PSBR for that year to £9 billion. The December 1976 cuts in planned programmes for 1977–8 and 1978–9 totalling nearly £3 billion were made to bring the PSBR and the money supply for those years within ceilings prescribed by the IMF as the price of their providing stand-by credits. Estimates of PSBR are notoriously difficult to make – the provision for borrowing by the nationalised industries and local authorities especailly so – and targets based upon them have not been very accurate. Those set for 1976–7 and 1977–8 were revised on several occasions, prompting one commentator to suggest that the public expenditure cuts made in 1976, partially restored in October 1977 and in the 1978 Expenditure White Paper, may well have been unnecessary, as the scaled-down borrowing requirement could have been met without cutting planned expenditure.
Decisions about the level and distribution of resources within the public sector are constrained not only by economic and financial factors; they have to be feasible and acceptable to ministers and civil servants; to party supporters; to the representatives of those groups outside Parliament with a direct or indirect interest in the provision of certain goods and services; and to the public at large. Even if the system for planning and controlling public expenditure was able to provide ministers with the evidence to support an economically efficient allocation, they might decide to use more or less resources to achieve particular ends which would entail the use of those resources in a less economically efficient way. For example, it might be decided to increase the volume or standard of a service beyond that level which was thought economically justifiable (assuming some acceptable criterion of utility or welfare) in order to mobilise or retain the support of a group or groups in society for what a government wanted to do in another sphere of its activities. Thus subsidies for certain foodstuffs and for housing, increased aid to private manufacturing and price restrictions on basic commodities like coal, gas and electricity, might be justified politically as part of a social contract in which trade unions exercised wage restraint.
There is no necessary contradiction between economic and financial rationality on the one hand and ‘political rationality’ on the other. A system which could provide, with explanations, for an economically efficient distribution of resources for stipulated objectives would enable ministers to see and consider the consequences of altering the level or pattern of that distribution. It would not prevent them from exercising a political judgement to alter that level or its distribution, but would demonstrate the economic costs of doing so. This is of course what PESC set out to do initially, in practice it has been able to say something about costs at the margin, but very little about anticipated comparative benefits.
It is obvious enough that economic and political judgements of this kind are not sharply differentiated in practice. Decisions about public expenditure are iterative – economic, financial and political judgements become intertwined and contingent. It is, however, the case that ministers collectively have to approve, amend, or reject the resultant pattern of expenditure which emerges annually (rather more frequently of late: there were fourteen expenditure packages between February 1974 and November 1978) in the run up to the Expenditure White Paper. On these occasions they have the opportunity to act in a way which lays more emphasis on the feasibility and acceptability of levels of public expenditure and their distribution between programmes than upon carefully worked estimates of cost, alternative uses and so on.
Here in Cabinet and its committees ministers fight stubborn and often successful rearguard actions to prevent Treasury raids on their programmes; here the Chancellor and the Prime Minister combine to persuade, cajole and bully their colleagues into accepting further reductions to meet predetermined ...