Northern Ireland Assembly Committee for Finance & Personnel

Government Resources & Accounts Bill (NIA Bill 6/00)


Comments for Committee Stage

As published by the NI Assembly Committee for Finance & Personnel

Second Report, Session 2000/2001. NI Stationery Office.


Des McConaghy



"The introduction of Resource Accounting will bring about a fundamental change in the way government departments account for their activities".

National Audit Office Annual Report 1998.


Public auditors are not given to wild statements. The NAO's claim that this legislation marks a "fundamental change" in governmental accountability is no exaggeration. The Bill is of central constitutional importance because it can radically affect the accountability of government and therefore the life chances of every citizen.


The Treasury described it as "the biggest reform of public finance management since the Gladstone era" (1). And its constitutional importance is clear if we trace the Bill's aetiology back to the original 1994 Consultation Paper (2). This established that, for resource accounting to be intelligible, the Government would need a new system of output and performance measures (OPAs) when reporting to Parliament and public on its programme and achievements (3).


But the Bill is also a "Pandora's Box". The naivity of the Treasury's initial OPA ideas in 1994 led to a search for a reporting dialogue that could be truly accountable (4). This quest also comes at a time when the Westminster Parliament is notoriously by-passed and ignored, and when even the notion of "representative democracy" is questioned. My evidence invites the Assembly to meet this challenge head on! It concentrates on these new reporting tasks and in particular the need for...


  •  an amendment to secure the Assembly's and Comptroller & Auditor General's access to relevant information (paras. 1 to 11)


  •  an amendment to place the new performance reporting on a statutory basis requiring Assembly validation (paras. 12 to 18)


  •  securing effective operation and control, and implications for the Assembly's scrutiny of budgetary and other planning measures (paras. 19 to 35)


None of this is an argument against resource accounting as such. As with all reforms there are advantages and disadvantages. Cash accounting has the merit of simplicity; which is always an important asset where a general understanding by lay members of the public is essential. On the other hand the advantages of Resource Accounting and Budgeting are now widely accepted and have been ably piloted by global trailblazers such as New Zealand. The New Zealand C&AG's 1999 Report "The Accountability of Executive Government to Parliament" is recommended as a model of lucidity (5).


Of course it brings new opportunities for "creative accounting". Andrew Likierman, the chief Treasury architect of resource accounting, has acknowledged this but has stressed that the danger is alleviated in the public sector by (a) "accountability to Parliament" and (b) "reliance on a single auditor, the Comptroller and Auditor General" (6); in other words precisely the areas where the NI Bill is at its weakest.


Options for NI Amendments

(a) Assembly and C&AG access to information


1.  Two linked matters are completely unresolved at Westminster. They are (a) parliamentary access to information via the C&AG and (b) parliamentary approval of the new output and performance reporting. This section deal with (a) where over the past seven years the Treasury has been unable to advance solutions wholly acceptable to public audit or to many in Parliament. That makes the NI Bill extremely contentious measure. Indeed it was the continuing nature of these confusions, and the extent, persistence and the seniority of cross-party parliamentary objections, that caused the Treasury to announce a "Review of Audit and Accountability for Central Government" (by Colin Sharman); right in the middle of the Westminster Bill's Committee Stage!


2.  This stands normal procedure on its head (legislation preceding review!). But it serves to underline the extent of unresolved questions at the heart of this Bill, and indeed in the Treasury's approach to performance reporting and the Supply process. Therefore although the above Review was first announced in late April, substantial amendments to the Westminster Bill were still proposed by the Chairman and members of the Westminster Public Accounts Committee in the Commons, and in the Lords...

  •  to extend the statutory access of the Comptroller and Auditor General, including access to the accounts of the new forms of service providers and


  •  to secure statutory provision for external validation of performance reporting.


3.  These amendments were defeated. But it is of course open to the Assembly's Finance and Personnel Committee to consider these cross-party amendments proposed during the passage of the Westminster Bill. The Committee could consider, and I respectfully suggest should consider, if the more important amendments could be adapted and proposed for the Northern Ireland legislation.


4.  The rationale for these Westminster amendments was as follows. The Committee of Public Accounts (PAC) and the National Audit Office (NAO) held the clear view that the statutory access of the C&AG should be extended and that it was an unacceptable abuse of the rights of Parliament (and therefore in the present case an abuse of the rights of the Assembly) to leave this to the Executive's discretion. In the NI Bill the C&AG's access can be extended, case by case, only following an order from (i.e. at the discretion of) the Department of Finance & Personnel (DFP).


5.  Unrestrained C&AG access is not only vital but increasingly so. One of the main objectives of resource accounting is to purchase "outputs" but there are already vast gaps in this information due to the new forms of service providers in the private and voluntary sectors. This dependence continues with central and local governments now regarded as purchasing agencies procuring goods and services from the private sector (7). Therefore it will be quite impossible for the Assembly to form a picture of local outputs (let alone "outcomes" or how to trade one output off against another!) if the C&AG cannot access these accounts.


6.  But at the Westminster Bill's Second Reading Treasury Ministers said they wished "to make the public sector a better client in public finance initiatives and public-private partnership deals" and when defeating the above amendments they explained that an extension of the C&AG's traditional "right to roam" could discourage the enthusiastic participation of the private sector. The NI Assembly might consider if this absence of transparency is really in the public interest or in the interests of good business practice.


7.  Moreover this lack of transparency will obstruct the public scrutiny that is now required under S.75 of the NI Act (1998).


8.  At the Second Stage of the NI Bill, Mr Bell, the Chairperson of the Finance and Personnel Committee, referred to the controversy over the C&AG's statutory access. Mr Durkan responded that these access rights were being reviewed by the (above) "Sharman committee". Mr Durkan added, "We will take full cognisance of anything that develops and will bring forward appropriate measures for Northern Ireland in due course". Reassuring? And yet there is no guarantee whatsoever that Colin Sharman's review will tackle, let alone resolve, all the central constitutional issues involved - or indeed that the Treasury will suddenly wish to do so! One simply cannot be sure.


9.  One must surely conclude, here and now, that it is problematic, if not downright bad practice, for the Assembly to proceed with important legislation while such central issues of principle are unresolved - and where they may or they may not be decided, elsewhere, following a future review. Devolution suggests discretion in such matters.


10.  So the Assembly has the example of the proposed Westminster amendments. Moreover the Committee for Finance and Personnel also has the example of the equivalent "Public Finance and Accountability (Scotland) Act" which improved the Scottish Auditor General's statutory access to accounts. The Consultation Paper preceding the Scottish legislation gives an excellent summary of the innovations based on the work of their Financial Issues Advisory Group (FIAG) (8). As a result the Scottish Act also went to the very heart of the Westminster Parliament's structural problem by, in addition, establishing for Scotland a statutory system of supply (9).


11.  Most modern democracies grant their auditors the right of access. Article 33 of the Irish Constitution gives their C&AG a constitutional right of access. It may not be always exercised but any citizen could challenge obstruction in the Courts. The equivalent Scottish legislation has improved their Auditor General's position over the limitations imposed on the C&AG in England and Wales. Why should Northern Ireland have less rights than Scotland, or indeed anywhere else?


Options for NI Amendments

(b) securing external validation of the reporting measures


12.  There is also the question about the external validation of performance reporting. The Westminster PAC and NAO held the view that the performance reporting should be on a statutory basis - and should be validated externally by the C&AG. They noted that this would bring central Government performance reporting into line with similar developments already in train in other parts of the public sector - the equivalent being the auditing of performance indicators already being operated at subservient levels of government, and also indeed in Northern Ireland.


13.  Here we find that the Northern Ireland Bill's most important provision is tucked away in Clause 7. This is the statutory basis for the actual preparation of resource accounts and Clause 7 (4) (b) provides the statutory requirement for "statements of financial performance, financial provision and cash flow". So this is the political heart of the Bill. And yet there is absolutely no mention of any new financial dialogue involving output and performance reporting - even though the successful operation of the whole reform depends on this.


14.  Meanwhile in England what was called "Output and Performance Analyses" (OPAs) in the 1994 proposals have given way to "Public Service Agreements" (PSAs) and "Service Delivery Agreements" (SDAs): all highly political documents. They add to the growing proliferation of performance regimes, at all levels, without a coherent procedure for parliamentary validation (10).


15.  Why, then, is there not a more specific reference to OPAs, PSAs or SDAs in the Bill? The explanation is that the Bill follows the Treasury's traditional formula for all matters of any constitutional importance: they are left to the discretion of the Treasury. Thus Clause 7(2); "Resource accounts shall be prepared in accordance with directions issued by the Department (DFP)". It is only in the informal Explanatory and Financial Memorandum that there is a hint of "a statement relating costs to objectives".


16.  As early as 1998 the Westminster PAC took a stand on this; "A performance statement on output and performance analysis is important in resource accounts. It will provide Parliament (the Assembly) with valuable information on what departments have achieved with the moneys voted to them. Such information will form the basis for enquiries into departmental accountability, and it will help inform Parliament's consideration of further requests for Parliamentary Supply. We therefore expect that such performance statements should be independently validated by the Comptroller and Auditor General alongside the resource accounts" (11).


17.  Mr Durkan appeared to accept the importance of Assembly "control" (external validation of Executive's PSAs and SDAs?) in his statement at the Second Stage of the NI Bill. He said; "Under the new system there will also be a summary of out-turns reflecting Assembly control, and, critically, a statement of resources by departmental aims and objectives under PSAs", (emphases added). But that is not what has happened at Westminster. And that is not what is provided for in the NI Bill.


18.  One may conclude that this omission of statutory provision has been partly due to a deep ambivalence, running through the history of this legislation, as to whether the innovations are primarily of a technical nature or of a political nature. But there is no doubt that it is mainly due to the Executive's continuing refusal to engage Parliament in any coherent or systematic debate of the Supply procedure.


19.  The Assembly may have to consider if they now wish to import this important feature of parliamentary impotence to the Province. On the other hand the Assembly may wish now to seek amendment that is more conducive to the historic task of encouraging representative democracy in Northern Ireland.



Securing effective operation and control


20.  The Chairman of the Westminster PAC made no bones about the political nature of the legislation at the Westminster Second Reading. "It is seen by some people as a technical measure, but it is a constitutional measure because it is primarily about the relationship between Parliament and Whitehall and the way in which Parliament allows the Government the money they need to run the country. It is as simple as that" (12).


21.  What is certainly not simple is the task of relating outputs to the relevant financial data in a way that anyone can understand - and without generating a whole new vastly expensive bureaucracy of central command and control. Moreover one should accept at the outset that a purely technical solution is impossible. For example there are loose references to "outcomes". But infinitely complex causal relationships between outputs and outcomes defy measurement or precise costing. The Scottish Auditor General, Robert Black, adds, "I very much agree with your core point that there are many aspects of performance measurement which are not amenable to static analysis" (13).


22.  Robert Black also agreed, therefore, with my assertion that "political debate is as important as the measurements used", (14). That has to mean arranging for constituency and sectoral feedback in operation and control of the SDAs and PSAs. It must mean always ensuring a clear linkage between the performance targets and the financial data. Then, wherever practicable, the Assembly should be able to follow expenditures to the point of impact. In this way (in a truly "Information Age" way!) constituency feedback becomes an integral part of the measurement process and effective political response.


23.  All this is now possible. The whole development of modern public audit - from the earlier concepts of strict financial audit to matters of effectiveness and efficiency - has only been made possible by developments in information technology (ICT). Public audit is now able to routinely disaggregate (or "localise") central expenditure figures to compare local impacts (performance) across the country; who is getting what, and for what! So the challenge in the operation and control of PSAs is to bring this sort of information from post hoc audit (that is to say after the event) into the information system assisting political judgement in the budget process (that is, before the event).


24.  But Ministers are resisting such developments, claiming it would compromise the objectivity of the PAC and NAO. As the Chief Secretary put it; "Performance evaluation is not the same thing as auditing (the) proper use of public money" ... "As you come closer to these performance and target issues, there is a risk - I put it no higher than that - that you get drawn closer to the political arena" (15).


25.  The Chief Secretary is obviously correct if suggesting that organisational conquest of government has limits. He is correct if claiming that government remains inexpressibly complex and diffuse. His point is quite unassailable that all major resource decisions are finally subjective and therefore a matter for political arena (16). Where he is less than frank is admitting that this also applies to the work of the Audit Commission; a grant aided external validation body. It's all politics! And what this whole silly anomaly points to is, once again, the great abundance of post hoc, ad hoc information available to Parliament, after the event, and the absence of systematic information available to Parliament before the event; i.e., in the budget process.


26.  That is why I referred above (and at my note 5) to the New Zealand C&AG's solution to RAB - which is to include prioritised sets of performance measures in the Supply Estimates. That process could then use automated routines to freely draw on the mass of disaggregated information from the NAO and National Statistics (and in NI also from the NISRA) without compromising any professional neutrality. And the priority information is, as always, the Executive's expenditure changes at the margin.


27.  Some of the mechanics were anticipated in a voluntary data-project I directed fifteen years ago where routines picked out the constituency implications of the then generously detailed Supply Estimates and similar data. User-friendly, inter-active programs were devised so that lay-persons (and the House of Commons in the English example) could "call up" who was getting what in any local area and at any level of aggregation. This ran for three years, and in a final year in N. Ireland with the then help of senior officials in each NI department. It showed, even then, what could be done (17). Since then I frequently suggested this could assist objective debate in NI only to be met with an official response - until recently - that it was all happening anyway.


28.  But it was not - and it is not! Even now Whitehall's pursuit of "e-government on-line" is largely confined to the more obvious routines and services such as passport applications, licences, hospital appointments, changes of address and the like. These important but relatively banal applications fall short of the in-depth and systemic re-engineering which would follow the Assembly's access to such online public sector information systems driving the budget process. This budget based initiative would penetrate all the departmental information silos (!) and, since NI is a largely public sector economy, would have a generative effect in procurement and in stimulating a knowledge-driven supply base throughout the Province.


29.  All this is totally relevant to the hope expressed by Mr Molloy, Chairperson of the Finance and Personnel Committee at the Second Stage of the NI Bill. He wanted to see the Bill providing the co-ordinating device for the "Programme for Government" and the otherwise mass of apparently uncoordinated reviews, reports and plans that reach Assembly Members. This Bill's function is to supply the Executive with resources it needs and therefore is the main chance for this co-ordination. But it can only come about if there is statutory provision for performance measures (PSAs or the like) and if they can function within the Estimates in the above way (para. 26)...


30.  As matters stand the NI Executive's first Budget is mainly a collection of aggregate figures for the Province set out in the Westminster tradition. As a practical matter the opportunities for useful scrutiny and debate by the Assembly Finance or functional Committees - or by the public at large - are quite limited. The first Scottish Parliament's Budget ("Investing in You") had similar faults; the scene was set for innovation but long held official attitudes and ways of working still impeded progress. The Scottish Parliament has clearly said this will be unacceptable in the current year.




31.  Finally can Northern Ireland really leave it to the Sharman review to define the limits of governmental accountability? Can we be sure that this Review will settle the constitutional dilemmas thrown up in the passage of the Westminster Government Accounts and Resources Bill - and now transferred to the Assembly in the present Bill?


32.  Alternatively the Assembly might consider for itself whether the NI C&AG's statutory access should be extended and statutory provision made for the PSAs and their Assembly validation - as suggested by senior parliamentarians at Westminster.

Resource Accounting demands this new financial dialogue. It will be pioneered by PSA type instruments and this cannot succeed outside an effective framework of debate. External validation is both a technical and a constitutional necessity.


33.  But the Government continues to by-pass the Westminster Parliament. Indeed it should be worth noting that our widely held notion of parliamentary accountability derives mainly from a relatively short period (between 1832 and 1890). At this time the political parties were relatively weak - and so we saw new statutes creating the C&AG and the Exchequer and Audit Department. Unfortunately our distinguished observers of the constitution, such as Bagehot, took this very exceptional period as typical and so the myth of modern parliamentary accountability became commonplace (18).


34.  With the rise of modern party organisations, however, what became known as "the Liberal fallacy" collapsed and Westminster reverted to its traditional feudal model whereby the Monarch and Ministers say what must happen and Parliament's job is just to "Supply" the finance. The latest Parliamentary attempt to redress this imbalance, including a modest reform of supply, has been firmly rejected (19). So even if Lord Sharman does "grasp the nettle" the Government will hardly relax its grip on Supply; some even say that the era of "representative democracy" may be coming to an end.


35.  These comments are nevertheless firmly rooted in the belief that transparency, solidarity and representativeness with people are all abiding virtues. It is suggested, too, that effective government and sustainability - even perhaps survival - may finally depend on the sort of constituency feedback that only representative democracy can deliver. Westminster now faces a real dilemma in this respect. But the Northern Ireland Assembly has unique statutory arrangements to protect it from the perverse effects of party political patronage. This therefore is a real opportunity, possibly also a unique historic opportunity, to demonstrate the benefits of representative democracy.

- ENDS -


Des McConaghy, 11 Nov 2000


Notes and References


(1)   H M Treasury Press Notice 195/99.


(2)   H M Government (1994), Better Accounting for the Taxpayer's Money: The Government's Proposals, Cm 2626 (HMSO), London.


(3)   See also National Audit Office Annual Report 1998, pages 9 and 10, NAO, London.


(4)   For a fairly definitive account see McConaghy, Des. Measuring (Accountable) Success - Analysis of Treasury Working Document, Public Money and Management, Vol 19, No 3, October-December 1999, CIPFA, London. Also in McConaghy, Des. Evidence in Treasury Select Committee (1999), Public Service Agreements, Seventh Report of Session 1998-99, HC 378 (The Stationery Office) London.


(5)   Controller and Auditor General 1999, The Accountability of Executive Government to Parliament, Third Report 1999, Wellington, New Zealand.


(6)   Likierman, Andrew. (1998), Accounting for a new age, Public Finance, 13 November (CIPFA), London.


(7)   This liberalisation continues globally, and nationally, but without C&AG access there is also fragmentation and loss of accountability. Now private contractors and voluntary bodies handle many £ billions of public money, from housing associations to prisons and hospitals, New Deal training opportunities, etc and limited companies established by central government bodies.


(8)   Scottish Executive (1999), Consultation Paper on a Financial Framework for the Scottish Parliament. See also HM Scottish Office (1999), Principles of the Scottish Parliament's Financial Procedures: Final Report by the Financial Issues Advisory Group, Edinburgh.


(9)   The NI DFP's Explanatory and Financial Memorandum briefly states, "The system of supply is largely non-statutory and it is not intended to change this". (Re. Clause 5, page 4).


(10)   The latest manifestation being H M Treasury, Spending Review 2000: New Public Spending Plans 2001-2004 (Service Delivery Agreements). Press Notice 125/00, 3 November 2000.


(11)   Committee of Public Accounts, HM Treasury: Resource Accounting and Resource-Based Supply, HC 731 1997-98, Stationery Office, London.


(12)   Parliamentary Debates, (Hansard), Vol. 340, No 13, 6 December 1999, col. 340.


(13)   Scottish Auditor General - correspondence with the author (20 April 2000)


(14)   Scottish Auditor General - ibid.


(15)   Committee of Public Accounts (2000), Ninth Report - Government Resources and Accounts Bill, HC 159 1999-2000; response to question 25.


(16)   Hopefully this can be contrasted with the Chief Secretary's predecessor view which seemed to threaten a "Soviet" style top-down command and control system; "Particularly as far as measuring outcomes as distinct from outputs is concerned, I think it is fair to say that we need to develop a new science", Alan Milburn. Treasury Committee, Public Service Agreements, Minutes of Evidence, 11 May 1999 page 55, HC 378-iii.


(17)   This is referred to in McConaghy, Des. Measuring (Accountable) Success - Analysis of Treasury Working Document, op cit. The voluntary database project was funded by Rowntree Charitable Trust, the MSC and donations from the BBC, etc. It collapsed when new Whitehall rules required that officials seek the maximum financial return for official data. But even in those early days it showed what could be done.


(18)   There are many definitive accounts. One of the most striking is Griffith, Professor J A G., (1982), The Constitution and the Commons, in Parliament and the Executive, RIPA, London.


(19)   Liaison Committee (2000), First Report, Shifting the Balance: Select Committees and the Executive , HC 300 1999-2000, and The Government's Response , Cm 4737, May 2000.



"Something new is necessary for every man and every nation. We may wish, if we please, that tomorrow shall be like today, but it will not be like it. New forces will impinge upon us; new wind, new rain, and the light of another sun; and we must alter to meet them" (Walter Bagehot, Physics and Politics, Collected Words , vil. II, p.76).


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