Professor John McHale:

We have certainly looked very carefully at all of the documents produced. We believed it fell somewhat short in terms of good bottom-up expenditure planning. One of the things about which we talk in the report is that expenditure planning tends to be done more on a top-down basis as determined by the fiscal rules and then ceilings are given to particular Departments without fully taking into account the pressures on them. One then sees a pattern of ceilings being raised year after year as the pressures become apparent. Ideally, one should have more bottom-up expenditure planning underpinned by a comprehensive review of expenditure to identify pressures, where efficiencies can be made, with the best prioritisation of expenditure. Following this process, one would then set realistic expenditure ceilings taking into account these pressures and opportunities to achieve efficiencies. Ideally, Departments would then be held to these ceilings. More use could be made of the comprehensive review of expenditure procedure to engage in bottom-up planning. One would then move from a system of what are sometimes termed "soft budget constraints" where one tells Departments, "This is your budget and you had better stick to it," but then changes the ceiling when pressures emerge. We have seen this particularly in the Department of Health. What one wants to move to is a hard budget constraints system under which the initial ceilings reflect the realities and the pressures on a Department.

When one has hard budget constraints, it is better from the point of view of planning at the Department’s level because it will have a good idea of its budget. It also provides better incentives to seek out efficiencies and the better prioritisation of spending. We believe there is substantial room for improvement as part of an overall medium-term planning framework.