Happy shoppers: spending public money well

Politicians love splashing the cash, finance leaders agreed at the 2019 Global Government Finance Summit – but spending that money effectively demands good financial management, intelligent targets, inspiring leaders and empowered managers. Matt Ross reports

“The urgency of the politician versus the accuracy and the policy delivery responsibility of the public servant: that is a tension in every democracy,” said Andrew Kakabadse. “Is this a tension we’ve got to live with, or will technology sort it out – or do our politicians need to mature a little bit?”

Kakabadse, Professor of Governance and Leadership at the UK’s Henley Business School, was commenting on one of the challenges to better resource management within government: the fact that ministers often focus on allocating budget, not on the goals that their investment is designed to achieve.

This proved a particular bugbear of the senior finance department and treasury leaders gathered at the Global Government Finance Summit: an annual event, hosted this year in Paris by the French Ministry for Economy and Finance and supported by knowledge partners EY and Swiss Re. During the discussion on ‘Monitoring and Managing Public Sector Performance’, a series of delegates had expressed frustration with politicians’ tendency to prioritise the spending of money over the achievement of outcomes.

“Politicians want to act; and when they agree on items, the first thing they agree is how much to spend on them,” commented Torsten Arnswald, Head of the Fiscal Policy Division of Germany’s Federal Ministry of Finance. “It’s hard sometimes to focus people on results, on utility – especially when you’re saying you’ll have to wait for the year after next to see results.”

So governments end up making spending pledges designed to hit the headlines, rather than to address the problem: ministers would, for example, rather announce the recruitment of more nurses than an investment in technologies to improve the efficiency of nursing. “In most places, when you go to Parliament the questions are always: ‘How much are you spending? Are you building more, hiring more?’,” said Miguel Castro Coelho, Chief Economist at Portugal’s Office of the Finance Minister. “There aren’t questions about what you’re doing with the resources the taxpayers have given you, and whether you’re eliminating waste.”

“For me, this is one of the biggest failures of modern democracies,” said Coelho. “The question is always how much you’re spending, not the quality of that expenditure.”

Keeping a Tali of spending

Yet modern public management practices and emerging technologies are providing much better insights into the nature and quality of spending – enabling civil servants both to track public spending much more closely, and to identify and calculate its impact. Budget processes are being rebuilt to focus on outcomes rather than inputs; to task public bodies with achieving policy goals, rather than spending a certain amount of money. And departmental performance metrics are shifting – encouraging public bodies to work together on building services around the citizen, rather than simply rewarding them for activity.

Veiko Tali, Secretary General of Estonia’s Ministry of Finance, explained how his country is building a digital “performance budgeting” system that tracks public bodies’ spending – and their progress against a basket of policy targets – on a monthly basis. Budgets are allocated to programmes, rather than departments; and the money flowing to each programme is monitored in a dashboard showing performance against its target metrics. When the system has been completed during 2020, he said, “we’ll be able to show colleagues where our money is, what the performance indicators are, and how they’re changing over time,” said Tali. “And at different levels of management, you’ll have different reports and dashboards: you can disaggregate it all.”

The system, he acknowledged, depends on Estonia’s unique approach to managing citizens’ data: departments share personal data freely across government, and this activity is completely transparent to the service user. “All government agencies have a right to use data they need for performance of their role; and every citizen or company has a right to see when anybody has used their information, and to ask for what reason,” he explained.

In part, it’s this transparency over data use – with every point of access visible in citizens’ data dashboards – that supports public confidence in Estonian officials’ management of their personal information. But public servants also work to ensure citizens enjoy tangible benefits. When companies submit tax returns, explained Tali, from 2020 they’ll be sent a detailed analysis comparing their accounts to those of similar businesses around the country: a free gift of valuable management information, enabling them to benchmark salaries, tax payments and other key metrics against their competitors. “Then people feel part of things; they’re not just sending information into a black box,” commented Tali. “They get something back, and feel that they’re part of this society. That’s extremely important.”

Creating common purpose

Singapore takes a very different approach to managing citizens’ data – but the city-state is just as keen to show its citizens how its public spending serves their interests. Han Neng Hsiu, Deputy Secretary (Development) at Singapore’s Ministry of Finance, described how the biennial Singapore Public Sector Outcomes Review “demonstrates that government is producing results for citizens” – using cross-departmental performance indicators that focus on the public’s experiences rather than agencies’ individual performance.

Agencies, he commented, tend to talk about “output indicators” – such as how many new kilometres of new roads or railway lines they’ve built. But citizens are only interested in outcomes: how quickly can they reach their destination? So Singapore sets targets built around their experiences rather than agencies’ internal operations: its goal of a “45-minute city”, for example, aims to enable people to travel between any two points within that period. “That process helps us to get different agencies to work together towards the desired outcome,” he added.

To drive the cross-agency collaboration required, panels are established at the centre of government to bring together the key bodies. “For example, we set up a climate change office to work across the different agencies – and that’s placed in the Prime Minister’s Office so it has sufficient clout,” noted Neng Hsiu. The Ministry of Finance, he explained, has also set up a Value for Money Office (VFM) to “assess outcomes against the three ‘e’s: whether we’ve achieved economy, effectiveness and efficiency”. The VFM team regularly conducts joint reviews with agencies, and works with them to develop benchmarks and strengthen performance evaluation.

What can targets target?

The UK also has long experience of linking public spending directly to service delivery targets, going back to the ‘public service agreements’ introduced under Gordon Brown during his 1997-2008 stint as Chancellor of the Exchequer. Over the years, complex systems of performance targets were developed in fields such as education and health care – and there were clear benefits in terms of transparency and accountability, identifying poor performers, and creating competitive pressures.

However, Matt Ross, Editorial Director at Global Government Forum, noted that these systems had brought problems as well as solutions. Frontline staff found themselves spending ever more time collating and analysing metrics rather than working with service users, while “some of the targets were too rigid, taking away from their own professional roles,” he said. And in some cases, organisations focused so closely on hitting targets that “there was an excessive focus on the target at the expense of everything else.”

What’s more, Ross argued, the UK’s attempt to focus on outcomes never quite reached the point of cutting away operational targets and concentrating solely on service users’ ultimate needs. “The health service wasn’t asked, for example, to hire so many thousand more nurses. It was asked to make sure that nobody was waiting in Accident & Emergency departments for more than four hours,” he said. “But over time, it’s become clear that that isn’t really the desired outcome: the outcome is to avoid the need for people to go into A&E.”

The UK’s health services targets worked, he added, in the sense that waiting times in A&E departments fell rapidly; but because health service providers have been incentivised to meet demand rather than reduce it, the number of patients arriving at A&E just keeps on rising. “So we’ve ended up with a system which is very good at dealing with acute sickness in healthcare, for example, but not very good at preventing people from becoming sick in the first place,” he said. “And that’s an objective that’s much harder to try to pin down in a set of metrics from the centre.”

Don’t forget the people

Achieving these much more subtle goals demands still stronger inter-departmental collaboration: reducing demand for A&E services, for example, involves coordinated action by public servants working in fields as disparate as housing, health and safety regulation, law enforcement, public health and social care. And whilst targets systems can be devised around these objectives, their success will depend on engaging and motivating public servants across the system: Veronica Scotti, Group Managing Director and Chairperson of Public Sector Solutions at knowledge partner Swiss Re, noted that “we continuously underestimate the behavioural aspects of things: we design the system, and forget behaviours.”

This struck a chord with Kakabadse, whose research on organisational behaviour has found that “the system might be excellent, but if the middle managers don’t like and trust you as a top manager, that sentiment overtakes any logic.” So the introduction of effective performance management is as much about hearts and minds as systems and metrics. And it also demands – noted Portugal’s Miguel Castro Coelho – that middle managers have the autonomy and influence to rebuild operations around an organisation’s new goals.

That’s not always the case, said Arnauld Bertrand, Global Government & Public Sector Advisory Leader at knowledge partner EY. In many governments, he pointed out, “managers have little autonomy to develop strategies addressing their goals; to stop an activity or start a new one; to invest in filling identified gaps in capability; or even to hire the right skills.

“In many cases, the manager does not choose their team: when a job needs filling, the HR department sends somebody,” he said. “And in many cases, it’s difficult to decide to stop one activity and support another project. The capacity of middle management in government to be responsible in such contexts, to have control, is in doubt.”

Technology, targets, tutelage, traction

So reshaping governments’ operations to fit funding systems around their ultimate goals – and excising the pursuit of funding as a goal in itself – requires changes on many fronts. Public servants need the systems and technologies to see how money is being spent, and to track its impact on people’s lives. They need intelligent, cross-departmental targets structures that focus their work on the government’s priorities. They need leaders who both set out a clear vision, and work closely with middle managers to plan its delivery. And they need the leverage and autonomy to make changes throughout the organisation, overcoming institutional inertia and structural obstacles.

There’s a long way to go before we reach that point, said Arnswald, highlighting national leaders’ preoccupation with input-focused spending targets such as those on foreign aid, R&D and defence spending. But better use of data, analysed and presented through systems such as those of Estonia, Singapore and the UK, can help shift politicians “into a position where they’re not simply announcing how much money they’re spending, but how likely it is to get the results they’re proposing.”

And at that point, he said, governments will have taken a huge step towards ensuring that public money is spent efficiently in the public interest. As Arnswald asked: “Why is that we keep on with the old guard, when we have the possibility to slip into the new world?”

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