Saving for a rainy day

Why don’t public sector agencies have any savings to protect them against unforeseen events? The answer is, simply, because they’re not allowed to. If government agencies were able to decide for themselves when or what to spend, the Treasury would not be able to control public expenditure at any particular time. And public sector agencies aren’t allowed any slack, which is viewed as “waste”. They’re not generally permitted to transfer money between specified budgets, or across financial periods (a process known as “virement”). Danny Alexander, the Chief Secretary of the Treasury, has announced that the Treasury is winding down its contingency funding, and that government departments must now set aside 5% of their funding to meet contingencies. This presumably means that they must be prepared to reallocate budgets – which is equivalent to having no contingency funding at all. It also means that the capacity of every department to deal with major events is conditional on its own resources, rather than risks pooled across the sphere of government. Perhaps this is prudent housekeeping, but I can’t see how.

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