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Line-item budgeting in the UK

发布时间:2017-04-12
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Title: Discuss the contention that as performance measurement has become increasingly linked to resource utilisation in many parts of the world and is increasingly used to hold departments to account for their performance that line item budgeting focuses too much on the process of delivery and that it should be replaced by a PPBS system focussing on the output. In your discussion consider why, given that the UK has been at the forefront of NPM reforms for over 20 years why line item budgeting is still a major method of budgeting used in the UK public sector.

Line-item budgeting has been used for many years and provides simple, but limited information beyond the cost of specific categories of expenditures or appropriations in order to ensure accuracy and control. On the other hand, a planning, programming and budgeting system (PPBS) is a prime example of a reasonable approach to budgeting which ought to be a crucial part of decision making and resource allocation. Nonetheless, line-item budgeting, despite its critique, is still the major method of budgeting used in the UK public sector. This essay will examine why line-item budgeting is still being used as the main source of budgeting and why PPBS’s are underused even though they are potentially extremely beneficial.

New Public Management (NPM) techniques have largely increased over the years, which have resulted in the need for the public sector to manage their products more efficiently and effectively. The use of NPM methods has proven to be beneficial in some cases, such as: “cost savings in road maintenance” (Larbi 1999), and as demonstrated by Ward (2007), cases such as public library management have also proven to be beneficial: “the outcomes of NPM included accountability, cost savings, and citizen’s use/satisfaction.” Other bodies which come under the NPM also include “prisons, mental health, social care, young persons, military and immigration detention centres” (Murray, Evans, Steinerte and De Wolf 2008) to name a few. The fact that cost savings are the main focus on NPM techniques illustrates how budgeting is crucial for public management and thus it is important to use the correct budgeting method, namely line-item budgeting or PPBS.

Line-item budgeting (also known as “traditional” budgeting) has been widely used for many years to assign different amounts to each line of the budget. It has been said that line item budgeting will “reduce spending” (Holtz-Eakin 1988) and that “the major benefit is that the budget is viewed as a sum of its parts and that each part is considered separately in terms of some measure of perceived need” (Thompson, Wood and Crampton, 2008: 142). It has further been stated that “the most prevalent modern form of expenditure budgeting is line-item budgeting and it is the form par excellence of the hierarchy” (Rabin 1992: 55). Arguably, line-item budgeting has been used for many years because of its mere simplicity and control orientation. This has resulted in its continued use despite the availability of newer budgeting implements.

On the other hand however, despite its popularity, line-item budgeting still possesses problems. It has been suggested by Bergmann (2008) that “traditional line-item budgets should be replaced by product budgets allocating a lump sum to each of the products and controlling the institutions through performance indicators rather than individual line-items.” Moreover, it has been argued that “it is impossible to determine what justification underlies adopted levels of expenditure and that such a method of allocating money allows secretiveness in budgets, vests power in only a few select persons, and does not encourage accountability” (Thompson, Wood and Crampton, 2008: 143). Thus, it seems that although line-item budgeting is far more commonly used than it should be, it’s use has in fact lessened and it does evidently have drawbacks. Moreover, it is obvious that this form of budgeting does not provide a sound basis for decision making.

Some argue that a planning, programming and budgeting system (PPBS) is the best method of budgeting in that it “contributes to accountability, both by its focus on programs and by its potential to use object-function codes to include productivity analysis. And that organisations are more likely to reach their stated goals and objectives” (Thompson, Wood and Crampton, 2008: 143). PPBS was developed because of the deficiencies in the traditional approach to budgeting and it was stated that “Programme budgeting is primarily a system associated with corporate management which identifies alternative policies, presents the implications of their adoption and provides for the efficient control of those policies chosen” (Jones and Pendlebury 2000: 79). It was further stated by Jones and Pendlebury (2000: 70) that “the principle features of programme budgeting are that it relates to outputs, emphasises the future and emphasises choice.” Arguably, PPBS was seen as a solution to the problems and deficiencies caused by the traditional approach to budgeting.

Nevertheless, although there was a lot of enthusiasm surrounding PPBS’s initially, by the 1970’s it has been abandoned by many organisations that had introduced it. There are however examples of PPBS remaining, yet not as many as formerly anticipated. Wildavsky (1970) submits that “the planning-programming-budgeting system has brought great damage to effective policy analysis,” and that “PPBS has failed everywhere and at all times” (Jones and Pendlebury 2000: 79). Hofstede (1981) further argues that “attempts to implement a system of PPBS would represent a fundamental error in the choice of management control models.” Possibly the finest form of budgeting system is programme budgeting and yet it appears to be discarded.

Still, it is argued that line item budgeting is about means and PPBS is about ends, yet it is questionable how accurate this view is. Jones and Pendlebury (2000: 60) say that “the way in which the annual revenue budget is prepared depends upon whether the emphasis is on the nature of the income and expenditure (line-item budgeting) or on the purpose of expenditure (PPBS).” It does appear that line-item budgeting is about the means since the emphasis is mainly on the income and although the expenditure on the overall programmes is shown it is not the same as PPBS where its main focus is on the expenditure. As verified by Millward (1968) “PPBS is being advanced as a revolutionary method for making allocative expenditure decisions within the governmental sphere.” However, Rabin (1992: 54) states that “the most prevalent modern form of expenditure is line-item budgeting.” Thus, it is uncertain whether the above view is accurate and whether the relationship between ends and means has been established, since “it may often be the case with PPBS that the resources required to undertake a particular program are scattered over several departments” (Jones and Pendlebury (2000: 79).

Nevertheless, in determining which budgeting approach to use under the NPM approach it is worth considering which the most appropriate form is. It is said by Allen and Tommasi (2001: 132) that “as long as it is comprehensive and includes an appropriate classification system, a line-item budget fits well with the requirements of expenditure control both at the lowest organisational level and at the aggregate level.” Therefore, it could be said that line-item budgeting is the correct approach to use. However, PPBS seems to “lead to better managerial planning and control because resources could be allocated more precisely to specific activities, and actual achievements could be monitored more effectively” (Jones and Pendlebury (2000: 62). Consequently, it is unclear whether line-item budgeting does focus more on the process of delivery which ought to be replaced by a PPBS system, focusing on the output, since it has been illustrated that line-item budgeting does also focus on the expenditure.

If a line-item budgeting system were to be completely replaced by a PPBS system it may produce difficulties within the budgeting process since one of the main arguments against PPBS is that “it would be difficult to operate since during the course of a typical day a police officer might be involved on several programmes and so it would be necessary to introduce a method for allocating direct, as well indirect costs to specific programmes. The administrative effort in doing this might well result in the costs exceeding any benefits” (Jones and Pendlebury 2000: 63). Thus, it may be safer to have both budgeting methods to fall back on, yet PPBS should be used more frequently as its “principle feature relates to outputs, it emphasises the future and it emphasises choice” (Jones and Pendlebury 2000: 63).

Nonetheless, although PPBS systems ought to used more frequently than line-item this is not always the case and as one survey reported, “approximately one-third of local governments still use the line-item method exclusively and another 43% use line-item in combination with other methods” (Crompton 1999: 63) This is mainly because it is “simpler, easier, more controllable, and more flexible than are many of the subsequent alternatives” (Crompton 1999: 63). It was also suggested by Kluvers (2002) that “line-item budgeting will continue to be used because users are familiar with this type of budgeting.” Therefore, although the use of a PPBS method of budgeting is not being taken full advantage of it seems that the use of line-item budgeting is, and users appear to be reluctant to move away from this method which may result in both approaches being used alongside each other in the future.

Overall, PPBS concentrates on long term effects and is primarily concerned with expenditure, whilst line-item budgeting is simple on the one hand, but has limited information on expenditure on the other. In addition, it is clear that PPBS methods of budgeting have failed to find widespread acceptance unlike that of line-item budgeting and it is therefore unlikely that line-item budgeting will be entirely replaced by PPBS. This is mainly due to the confidence organisations have in line-item budgeting and because of their familiarity with the system. Maybe if the PPBS method of budgeting was not as difficult to use establishments would be more inclined to use such an approach. Nevertheless, even if the PPBS method of budgeting was easier to use it is unlikely that organisations that have reliance in the line-item budgeting system would use the PPBS approach as its main source. At present it seems that line-item budgeting will always be the main source of budgeting, yet the future remains to be seen.

Reference List

Aaron Wildavsky (1970) Rescuing Policy Analysis from PPBS, In: Public Expenditures and Policy Analysis, Chicago, Markham Publishing Company, p 461-481, [Online], Available: http://md1.csa.com /partners/viewrecord.php? [1970]

Douglas Holtz-Eakin (1988), Syracuse University; National Burea of Economic Research (NBER), The Line Item Veto and Public Sector Budgets: Evidence from the States, NBER Working Paper No. W2531, [Online], Available: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=425563

David C. Thompson, R. Craig Wood and Faith E. Crampton (2008) Money and Schools, 4th Edition, Published by Eye on Education

Aaron Wildavsky (1974), In: Hugh M. Coombes and D. E. Jenkins (2002) Public Sector Financial Management, 3rd Edition, Thomson Books

Rowan Jones and Maurice Pendlebury (2000) Public Sector Accounting, 5th Edition, Prentice Hall Financial Times Books

George A. Larbi (September 1999) The New Public Management Approach and Crisis States, United Nations Research Institute for Social Development, UNRISD Discussion Paper No. 112, [Online], Available: http://www.pogar.org/publications/other/unrisd/dp112.pdf

Robert C. Ward (2007) The Outsourcing of Public Library Management, Administration & Society, Vol. 38, No 6, 627-648 (2007), [Online], Available: http://aas.sagepub.com/cgi/content/abstract/38/6/627

Andreas Bergmann (2008) Public Sector Financial Management, Prentice Hall Financial Times Books

Robert E. Millward PPBS: Problems of Implementation, Journal of the American Planning Association, Volume 34, Issue 2 March 1968, pages 88-94, [Online], Available: http://www.informaworld.com/smpp/890224846

Jack Rabin (1992) Handbook of Public Budgeting, Published by CRC Press

Professor Rachel Murray, Professor Malcolm Evans, Dr Elina Steinerte and Antenor Hallo de Wolfe (March 2008), University of Bristol, Implementation of the OPCAT in the UK: The National Prevention Mechanism, Seminar Organised by the University of Bristol OPCAT Project, [Online], Available: http://www.bristol.ac.uk/law/research/centres-themes/opcat/opcatdocs/uknmpfollowup.pdf

Richard Allen and Daniel Tommasi (2001) Managing Public Expenditure, Published by OECD

John L. Crompton (1999), Financing and Acquiring Park and Recreation Resources, Published by Human Kinetics

Ron Kluvers (18 December 2002) To PPB or Not to PPB – Budgeting in Victorian Local Government, Australian Journal of Public Administration, Volume 58 Issue 4, pages 68-77, [Online], Available: http://www3.interscience.wiley.com/journal/119076971/abstract?CRETRY=1&SRETRY=0

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