A new guide to public finance accountability

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This is a guest blog from Alice Telfer, Head of Business Policy and Public Sector at the Institute of Chartered Accountants of Scotland (ICAS).  ICAS has published a new guide to help explain how the UK and Scottish governments are held to account for their decisions on public finances, where the money comes from, how it is spent and prioritised and the results of audits of public accounts.  As with all guest blogs, what follows are the views of the author, and not those of SPICe and the Scottish Parliament.

The ICAS guide

There is currently no consolidated source available to explain the complete public finance trail matched to accountability arrangements, yet a lot of information is available online in different sources. ICAS has therefore developed a guide, ‘Accountability map – UK and Scottish public finances‘, which links to various original sources to present a high-level overview.

“With increasing public interest in public money and what it achieves – this guide helps to explain how the system works and who’s accountable for what.”

Gordon Smail CA, Chair of ICAS Public Sector Panel

In the public interest

The guide starts with setting the UK budget and the associated budget scrutiny process and how the UK Government is held accountable for public spending. The guide then considers how powers are split between the UK and Scottish Parliaments.

The processes and accountability arrangements surrounding public finances in Scotland continue to evolve. The devolution of finances increases complexity, creating greater need for a guide to aid understanding and help navigate the different accountability arrangements. Ensuring sufficient public transparency in Scotland is particularly important to promote public understanding and support effective scrutiny. This is in the public interest.

Increasing devolution of powers to the Scottish Parliament offers greater scope for decision-making in Scotland regarding how UK funding is applied. Specific focus is important in a number of areas, such as:

  • Clear communication of the reasons underlying prioritisations
  • Scottish decisions on the application of additional funding (e.g. through Barnett consequentials where the UK Parliament has made a spending decision in England, involving a change in UK taxes)
  • Arrangements for scrutiny
  • Assessment of impact.

“The accountability arrangements for UK and Scottish government finances are undoubtedly complex. By explaining these in an accessible manner, the ICAS guide seeks to bring enhanced transparency to these complexities.”

David Watt CA, ICAS Public Sector Panel member and public sector board non-executive

Devolved jurisdictions and the Fiscal Framework

Devolved finances are inextricably linked with the UK finances and the guide includes a section on UK Government funding of devolved jurisdictions and the Fiscal Framework. Managing these interdependencies can be difficult (e.g. application of Barnett consequentials and timings for budget setting and forecasting can be squeezed).  This highlights the importance of collaboration as part of Scotland’s budget setting process.

The presentation of Scottish public finances does not currently show a single whole of government picture for Scotland. Publishing whole of government accounts (WGA) for Scotland (on the same basis as WGA UK) would increase transparency. This links with performance reporting (at whole of government UK and devolved jurisdiction levels). Developing stronger demonstrable links between parliamentary (and public body) decisions on finance and service performance, with impact assessments, cross-jurisdictional comparisons and outcome measurements is important for public accountability of decision-making.

The guide explains the different types of published accounts used by the Scottish Government (IFRS and cash-based) as well as their audit and reporting arrangements.

Longer-term financial planning

Greater focus on longer-term financial planning and budgeting is generally accepted good practice, better matching the longer-term horizons of public sector service impacts and offering flexibilities to manage finances. We believe that managing the public finances on a longer horizon is a crucial tool for meeting public sector challenges.

Ultimately, only expenditure authorised by the budget process can be spent and this is dependent on Ministerial decisions. If any differences in the accountability process exist, their potential impact should be highlighted and assessed to ensure the controls are still fit for purpose.  For example, the return of EU functions to the UK has implications for the devolved settlement.  Some UK funds (e.g. Structural Funds) are provided to Scottish local authorities directly rather than via the Scottish Government. As this is unprecedented and systems may not be geared towards this, a risk evaluation should be undertaken to ensure that the principles of sound financial management are applied.

Increasing devolution and revenue-raising through Scottish taxes are linked to the performance of the Scottish economy (e.g. VAT revenues). Signposting this interaction supports public understanding. Some aspects of further devolution have been delayed (e.g. VAT assignment and some social security benefits).

Given the context of change, a periodic review of the methods and effectiveness of the scrutiny of Scottish budget accountability to meet public interest needs would help to ensure accountability keeps pace and continues to meet the intended purpose. The budget setting and review processes at Westminster and the Scottish Government differ. In Scotland, budget accountability arrangements are evolving. We comment on current arrangements and key gaps.

A single, comprehensive source of independent, balanced information on public finances, performance and how decision-makers are held to account would support transparency, public understanding and scrutiny. This should include not only inputs (spend), but also performance (effectiveness and outcomes).

Alice Telfer, Head of Business Policy and Public Sector, ICAS