Spending Review: Public sector financial rigour crucial

Public sector finance staff will need to assert strong financial management over the next four years to help steer their organisations through deep spending cuts and hundreds of thousands of job cuts, according to finance experts.

The public sector has emerged as the main loser in today’s Comprehensive Spending Review, which announced £83bn worth of spending cuts. Central government contributions to local government will drop by 26% to £24.2bn by 2014/15. Local government spending will fall by 14% to £49.1bn.

Councils will need to slash costs and boost productivity on fewer staff. One public sector finance expert has predicted that these demands will prove too much for some councils who will run out of cash and have to be rescued financially by the government.

“Some councils will run out of cash at some point in the next four years, in much the same way as parts of the public sector health economy did in the middle of the last decade,” said Iain Hasdell, partner and UK head of local and regional government at KPMG. “Central government is likely to have to affect financial rescues of a small number of local councils later in this parliament. ”

Gillian Fawcett, head of public sector at ACCA, said that recently announced cuts to quangos could be counter-productive. “Many of the quangos scrapped by the government are actually very tiny and their demise won’t make a perceptible impact on the deficit. Besides, rather than saving money, the scrapping of many of the quangos will end up costing the government money in the short term.”

ICAEW chief executive Michael Izza said that hitting government targets for savings would require “strong financial management” in the public sector.

“It will require transparency, objectivity and clear accountability, especially where fiscal responsibility is devolved for example to local authorities,” he said.

He said that plans to cut HM Revenue & Customs’ spending by 15% should not be allowed to hinder tax collection.

“HMRC has already had to make significant efficiency savings in recent years, ” Izza added. “At a time of fiscal austerity, the government should not compromise its ability to collect revenue.”

There are doubts as to whether HM Revenue & Customs would achieve targets for efficiency savings.

Stephen Herring, senior tax partner at BDO, said: “In our view, generating ongoing efficiency savings requires a more active approach to tax policy simplification enabling resources to be released for combating tax evasion and improving the service provided by HMRC to both businesses and individual tax payers.”

Further reading:

Spending review: the fallout for the taxman and the advisers

Spending Review: £100m to clear PAYE backlog