Have you got your onion sorted?
The UK Experience by Malcolm Morley*
As part of the annual budget build process, which is increasingly becoming an ongoing process, rather than limited to autumn/winter, it is important to develop a number of scenarios based upon target levels of net expenditure reduction.
To provide the context for these scenarios, a base level build up of the current budget needs to be carried out.
This bottom up budget build starts with identifying the costs of the council before it opens its doors to the community, the statutory minimum service costs (no discretionary services), statutory minimum services plus basic discretionary services, statutory minimum services plus enhanced discretionary services and the as now service costs.
Carrying out this process really gets managers (and politicians) to focus on why services are provided and to categorise them appropriately.
It certainly stimulates discussion of questions, such as:
- is a service really required?
- why has a level investment in a service developed over time?
- in the current financial context and with changing needs of the community, is a service an absolute necessity?
- is investment in a service proportionate to need/priority and other services?
- does the investment represent value for money when compared with alternative options for its provision?
- is the service consistent with the council’s priorities based upon consultation with the community?
Carrying out this process enables a council to create the service cost ‘onion’, as it illustrates the layers of cost relative to the categories above. It facilitates the challenging of costs and service levels and an informed debate about the priority of services. In doing the above, it is important not to forget income generation.
Service costs are identified in terms of net expenditure.
Those services that are generating a net contribution to resources are specifically highlighted and given high importance.
In doing so, however, it is important to identify future investment needs to sustain that net contribution.
Similarly, it is important to review central overhead costs. Reducing the service portfolio should result in reduced overheads.
Often services designated as mandatory statutory services have been protected.
It is important in carrying out the above to challenge not only what is provided (frequently non mandatory services get absorbed into statutory services over time), but to challenge how they are delivered.
In this way, all services are part of the budget build and categorisation process.
Completing this ‘onion’ enables the scenarios for budget reductions to be carried out rationally and transparently.
It is vital that an incremental approach, where a bit is shaved off everything, is avoided.
Central Government will announce the results of its Comprehensive Spending Review on 20 October 2010 with detailed specific Government Department announcements in the weeks thereafter.
This timescale means that little time will be left for councils to formulate their budgets prior to officially setting them in February 2011.
The development of the ‘onion’ enables different scenarios for budget cuts to be developed for both the 2011/12 financial year and for future years.
Be warned, however, cutting through an onion can make the eyes water!
*Malcolm Morley is Chief Executive of Harlow District Council and can be contacted via the Editor, email firstname.lastname@example.org The views expressed in
this article are not necessarily those of his employer.