Julia Irvine 10 May 2017 03:08pm

U-turn on FM counter-productive, Izza tells Treasury

ICAEW has taken the outgoing government to task for reneging on its commitment to improving financial management throughout government

In a hard-hitting blog, ICAEW CEO Michael Izza described chancellor Philip Hammond’s recent decision to split the comparatively new role of director general of spending and finance and move the financial management brief out of the Treasury at a time when strong financial leadership is needed more than ever, as “counter-productive”.

“Given the challenges facing the UK’s public finances with a growing national debt and increased borrowing, with the negotiations and potential cost of Brexit looming ahead, with the weakening of the pound and household incomes starting to be squeezed, I am both surprised and disappointed that HM Treasury has given up responsibility for improving financial management across the UK government,” he wrote.

Four years ago, the Treasury commissioned a major review of financial management after a number of embarrassing and expensive public spending errors. It was carried out by senior Treasury staff, with Lord Sainsbury as expert adviser.

Part of the evidence the team considered was ICAEW’s paper, CFO at the Cabinet Table, which argued for three reforms to accelerate financial disciplines and help Whitehall to plan for the long term.

These included: transforming the role of the Treasury into a modern and more proactive finance ministry, and enable it to perform a group finance function; create a group CFO role to take overall responsibility for financial disciplines across government; and empowering finance directors in government departments and elevate their status to create a strong finance function across government.

The team’s recommendations for reform, which were issued in December 2013, embraced ICAEW’s call for strong financial management – including a new post of director general for spending and finance to be based in the Treasury, rather than in the Department of Health as the previous head of finance had been.

The then chief secretary to the Treasury Danny Alexander accepted all the recommendations. “Strong financial management across central government has been, and will continue to be, critical to achieving this,” he said at the time.

“Moreover, the improved information that comes with stronger financial management will be key to delivering better public services and driving public sector reform.”

In 2014, Julian Kelly, a senior civil servant and CIMA-qualified accountant, who had been head of public spending at the Treasury, was appointed to the role and work started on implementing the recommendations across Whitehall.

Since then the reform programme has gathered pace and is considered one of the most successful cross-departmental initiatives to date.

In December 2016, think tank the Institute for Government (IfG) and accountancy body CIMA issued a joint report that concluded the financial reforms had delivered significant progress in a relatively short period of time. But both bodies warned that the reforms were still a work in progress.

The reforms, said report co-author and IfG deputy director Julian McCrae, “have created a stronger sense of community among finance leaders, established new processes for understanding spending within and across departments, improved professional development for finance staff and enhanced the coherence of financial information within departments and flowing to the centre of government”.

He urged the chancellor and the Treasury to give the reforms more time to embed, arguing that it could take up to 15 years to achieve the target outcomes.

The success of the reforms so far and the need for more time was reiterated at the end of April by the Public Administration and Constitutional Affairs Committee in its annual report on government accounts.

So Hammond’s decision to downgrade the importance of the financial management reform project has come as a shock. Under his plans, the Treasury will concentrate on cutting spending while the leadership role for financial management will be moved back to an as yet unspecified Whitehall department.

Kelly, meanwhile, is leaving the post and moving across to the Ministry of Defence as director general nuclear. The Treasury role of head of public spending is going to James Bowler, a senior civil servant and non-accountant who is currently director general, tax and welfare.

The financial management role is yet to be filled.

ICAEW says that it will campaign to get good financial management back at the top of the incoming government’s agenda.

“I still maintain that government needs a CFO at the top table,” Izza said. “The task facing the incoming chancellor when it comes to balancing the books will be enormous and, as we know from the public spending figures, there is increasing urgency.

“Having a qualified accountant with strong financial leadership skills at the top would help government instil financial disciplines across Whitehall, provide strategic advice to policymakers on key financial policy decisions, strengthen standards, improve balance sheet management and drive value for money across government.”

He added that having the right financial leadership, with both the technical skills for the task and the strength of character to challenge Whitehall’s financial culture was an essential requirement “in these uncertain times”.