It has been announced that the Treasury is to create a new chief financial officer role for central government. Professor Colin Talbot argues this is simply another impressive-sounding but ill-conceived attempt to quickly fix a complex problem.
The coalition’s latest wheeze is to create a new government Chief Financial Officer, similar to the position found in big corporations. This plan, concocted by Treasury minister Danny Alexander and Cabinet Office minister Francis Maude, will apparently solve all the problems of poor financial management across Whitehall.
It’s hard to know where to start in explaining why this is such a daft idea. But we need to begin somewhere so let’s kick off with a basic lesson in the British “constitution”.
Ministers are accountable to parliament. Not “the government”, except in very rare circumstances, but individual ministers (supposedly) answer to parliament for their own ministries. The civil service heads of their departments – “Accounting Officers” – also answer for their stewardship of public money in their departments, principally to the powerful Public Accounts Committee. That is the way the system is supposed to work.
Now, we all know it is no longer works quite like that. Ministers rarely answer for massive blunders in their departments. They have either left before the merde hits the fan, or they blame their civil servants (dare I mention Universal Credit). But the constitutional – and institutional – convention remains, and as long as it does any attempt to take accountability away from ministers is bound to run into problems.
Creating a central chief financial office for the whole of government is just such an attempt to take power away from ministries into, in this case, HM Treasury. Why?
This daft idea can be traced back to – guess what – management consultants, in this case the ubiquitous McKinsey. Its report suggested if only Whitehall could modify its “federal” structure it could save billions. A CFO could force more financial discipline across Whitehall.
The new role could indeed provide some benefits. No-one would argue that Whitehall is sufficiently “joined up”. But imposing joined up financial management through a CFO is not possible without a fundamental change to the democratic accountability of our government – something, unsurprisingly, most management consultants just don’t “get”. British government is not (yet) a corporation.
Within our current system, the only way of achieving better “joining up” is by mutual adjustment and compromise, not central dictate.
The second daft element of the CFO proposal is that they should be based in the Treasury. The biggest divide in Whitehall is not between the Treasury and the ministries that directly spend on public services, it is between the Treasury and No. 10. Recent governments have either exaggerated this divide (as in the Blair-Brown wars) or hidden it (as in the apparent concord between Cameron and Osborne), but it is a permanent feature of our existing institutional arrangements.
In any sane system, if we are to have a centralised government then the prime minister should drive strategy, and finance should be subordinate to that strategy. A CFO in the Treasury would only add to the habitual conflict between No. 10 and No. 11.
The third and final stupidity of the current thinking is that some private sector CFO can be drafted in to “sort things out”. I am sure there are many very talented private corporation CFOs out there. No doubt many will have immense experience and knowledge of managing some quite diverse conglomerates.
But nothing – nothing – in the private sector equals the diversity and complexity of government. The UK government runs a massive spread of functions from health to forestry, welfare benefits to space programs. Nothing in the private sector comes remotely close.
Government does not have a single “guiding mind”. It has divided and fractured systems of authority and accountability that cannot be managed like a single corporate body. Even a (relatively) diverse conglomerate is not managed in the same way.
Like many such “solutions” in the past, this latest idea is a short-cut, presenting a seemingly plausible answer to the wrong question.
The real problem is getting proper financial management into Whitehall departments. Since the “Financial Management Initiative” of the early 1980s under Thatcher, it has been widely recognised that Whitehall lacks proper financial managers and systems.
A classic example occurred back in the early 1990s when Derek Lewis – a former TV executive – took over as director general of the Prison Service. Lewis famously recounted how, just before his first board meeting, he received all the papers. “But where’s the finance papers,” he asked about this almost £2 billion “business”. “Sorry, DG,” came the reply, “but we don’t discuss finance at the board.”
Things may have improved – a bit – since then, but the latest National Audit Office report in 2011 stated that “good financial management is still not embedded in the civil service culture”. Appointing a CFO in the Treasury may look impressive, but in reality it will do little or nothing to address the problem that has persisted for decades.