Critically analyze how successful the British government's use of Essay - 1

Critically analyze how successful the British government's use of Spending Reviews has been as a way of making government more - Essay Example From the chart it is evident that in the past government’s total expenditure persistently exceeded, often to a great extent, public sector revenues, forcing it to resort to borrowings. This situation is necessarily a temporary measure, because prolonged reliance on increasing levels of borrowing increases the default risk to the firm or the government. To ensure a sustainable financial approach, it is therefore important to control expenditures, for which an effective and responsive spending assessment process must be adopted. SRs and PES: How the SR system compares to the old PES system Before 1992, the level of government spending was ascertained through what are called annual Public Expenditure Surveys (PESs). The approach was fragmented and piecemeal because the Treasury negotiated bilaterally with each department. This prevented the government from developing a strategic outlook on the overall level of public spending and the balance or prioritization among its components . Another element that the PES was unable to do was to account for cyclicities among spending – that is, it does not distinguish which spending is cyclical and which is non-cyclical. This caused the total spending to ‘creep up’. ... s by lengthening the duration between PESs to three years, managing aggregate public spending in a top-down approach by specifying a ‘control total’ (i.e., government’s total planned spending), and distinguishing between DELs (departmental expenditure limits) and AMEs (annually managed expenditures). DELs cover those expenditures which government argues can be controlled, while AMEs are expenditures driven by demand which the government cannot effectively plan for, such as social security payments, debt interest, and the spending by local authorities. The Labour government came into power in 1997, and a year later the control totals system was replaced with a system that required departmental spending to be fixed for three years in Spending Review (SRs). There had been five such spending reviews, shown in the following diagram. Before each SR, the Economic and Fiscal Strategy Report determines the Total Managed Expenditure (TME), which is the expenditure by the en tire public sector and derived from the National Accounts. It is the TME which is divided into the two components earlier described, the DELs and the AME, and the DELs are thereafter allocated by departments. Both the DEL and the AME are divided each into capital spending, or spending that increases the public sector’s fixed assets, and resource spending which is spending on everything else. The Labour government criticized the control total method of budgeting under the 1992 framework as preventing departments from efficiently spending and investing money, based on the following reasons: (1) The control totals over three years is of an ‘indicative’ nature – that is, control totals for the second and third years are only advisory in nature, and may be, as they have often been, increased when felt