Innovation should be central to the way any organisation operates. But commitment to historic spending priorities can kill innovation. If your budgeting is essentially that what has been brought forward is then carried forward, you are killing opportunities for the organisation to change.
Nowhere is this more true than in government – or, more specifically, for what goes for government in Northern Ireland. Policy decisions taken decades ago continue because our system of departmental silos and party political division undermines the opportunities to reform spending priorities.
Why and when, for example, was it decided that housing landlords should be able to avail of larger rates discounts than owner occupiers and tenants? Similarly, which administration capped domestic rates charges on the most expensive properties? Would those decisions be taken today, when our health system has collapsed and schools face crippling deficits? I doubt it.
Meanwhile, our government has insufficient funds to invest in core services that would expand our economy – water and transport infrastructure and social housing construction are obvious examples. Childcare and social care are others.
When it comes to competition between existing spending patterns and emerging needs, it is often the inertia of the brought forward that wins out. That represents significant lost opportunities for doing things better.
There is an alternative and it can work – accountants know it as a zero based budgeting exercise. Quite simply, prior year spending patterns compete on equal terms with proposals for new spending. Given the scale of challenge, in particular, in the health and social care field, nothing short of a revolution in how money is spent is going to resolve the crisis.
I first came aware of zero based budgeting when I was commissioned by the former Audit Commission to write a series of case studies that illustrated best practice in public sector management in England. (The Audit Commission, which aimed to improve value for money in public spending, closed in 2015 as part of the UK government’s austerity cuts.) I met with senior officers at Oxford City Council and was impressed by what they had achieved through zero based budgeting, or ZBB.
ZBB is not simple and is likely to represent a cost in itself through deep dived analysis of the costs and benefits of historic spending patterns and comparing those to new opportunities. It is not a process that can be undertaken on a permanent basis. But as a one-off event for an institution that tends to be set in its ways rather than anticipating the future, it has strong potential benefits.
Within the public sector, ZBB becomes particularly attractive when inflation increases costs at a time when revenues are not matching those cost hikes. That is roughly where the Northern Ireland Executive sits today. It does have a range of options to match revenues to expenditure – water charges, raising tuition fees, increasing rates, mutualisation of NI Water and the Housing Executive – but has agreement across the political divide within government.
And it is quite likely that even with a ZBB exercise that the usual divisions will continue, blocking any attempt to make change. That is the way of a coalition of near opposites. Yet even the process of undertaking a ‘fundamental review’ of spending could lead to a more open prioritisation process – with a better understanding by politicians of what spending is being undertaken and why.
Many cash strapped councils in England have undertaken ZBB as they grappled with lower revenues from central government, at a time when social care costs in particular have risen substantially. To quote from one recent English council committee paper, “ZBB encourages the questioning of set assumptions, and facilitates systematic review, reprioritising, and, perhaps, withdrawing from long term activities that no longer align properly with an organisation’s objectives.”
As that paper itself states, it is a process that has become less popular in the public sector over the last decade. And perhaps it needs to take place no more than a once in a generation, and only in the event of crushing spending pressures.
But given the mess Northern Ireland’s government is in today, something different needs to be tried. It isn’t just our NHS, social care and schools that are in crisis, so too are the police, prisons, courts, house building, water and sewage infrastructure, childcare, while the spending pressures on universities, colleges, public transport, roads maintenance and social infrastructure are immense.
Just going on as before – carrying forward the brought forward spending patterns – simply will not cut it.