There is no good time for portfolio budgeting

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ImageHaven’t we been here before? Getting budgets to more perfectly reflect the policy priorities of government has long been the holy grail of budgeting in the public sector, but the reality of government budgeting is messy compromise. If the history of various countries efforts to promote policy coherence shows one thing clearly it is that the budget is the wrong tool to achieve this. Why is this and how can governments achieve greater coherence in support of higher level policy goals? 

Program budgeting in the US in the late 1960’s was probably the first major attempt to break down the traditional departmental silos within government. It failed spectacularly and arguably set back efforts to introduce programmatic and results informed budgeting by several decades. Over the last decade or so attempts by OECD countries, including France and the UK, to revive the idea in new forms are instructive. Both introduced steps to promote policy coherence and both countries experimented, in different ways with reorganizing budget appropriations around key policy priorities. 

The UK under the New Labour government identified strategic themes, supported by Public Service Agreements which incorporated targets that then cascaded down to department level. This helped policy coherence and informed strategic re-thinking of resource allocations, but the next step of introducing cross cutting government objectives, including reducing child poverty and mitigating climate change failed to deliver results and was soon abandoned. Why? Because it became clear that no-one was accountable for delivering the targets. 

France took a similar approach with the 2005 Loi Organique relative aux Lois Des Finances. This established inter-governmental commissions covering 11 broad policy objectives, such as promotion of research and overseas aid.  But the sub-programs and budget appropriations within this were still aligned with departmental boundaries. Even this approach has been scaled back in recent years as the expected benefits did not materialize in all cases.

The fundamental problem in all these approaches seems to be lack of accountability for delivery a shared objective. This appears to have been the root of the failure of the US attempt at program budgeting in the late 1960’s. It assumed that that the traditional institutional boundaries were historical anachronisms that could be ignored. Viewed from one perspective it is a simple problem of incentives – re-organize Government around these objectives and the problem is solved! If only life were so simple – all solutions to organizational problems in government involve elements of compromise and illogicality. Should the promotion of basic research be an education program or an industrial/commercial program? Should decisions about tax breaks and other subsidies in support of the research objective be subordinated to the high level goal or be controlled by The Ministry of Finance? Who should be held accountable for the outcome?

The strongest argument for aligning budget appropriations with existing structures is that these structures themselves reflect government’s best judgment about where the boundaries lie and how programs are defined. In functional government systems organizational structures and mandates shift and evolve over time to reflect new policy priorities. But radical re-organization in the name of policy coherence imposes enormous costs and can easily divert the main energy and attention away from the better management of resources – the creation of the Department of Homeland Security perhaps being the clearest case in point.      

In short the budget is not the right tool to promote policy coherence across government, it is a case of the tail wagging the dog. The evidence suggests that cross-government spending reviews, Inter-governmental commissions, czars and limited re-organization of responsibilities do a better job, imperfect though they are.   

Photo Credit: Flickr User elycefeliz 


Ivor Beazley

Lead Public Sector Specialist

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