Contingency Reserve

Much has happened since my last post, but this one is concerned mostly with British Politics and the Economics thereof.  According to World , we have a GDP of $2.31 Trillion (approx £1.6 Trillion) for the year 2008.  We have Government Spending again for the same year, 2008, 0f £575 Billion (Source, UK Public Spending).  This figure is expected to rise rapidly as can be seen here

UK Government Debt
UK Government Debt

Now much of that is central Government spending, in fact, from the same source, UK Public Spending, 76% of this total is Central Government spending, as defined by the Budget.

Now, first, let me say I’m not an accountant, but I have been involved in drawing up Budgets in companies and I know of two points that I believe need expanding, the first is the idea of a “Reserve”, a portion of the budget that is not allocated when the figures are drawn up, the other point is around the use of the Budget granted, “Spend it of we will not get the same next year”.

Reserve first.  Of the £575Billion in the 2008 Budget, what was the contingency set aside to cover emergencies?  I can remember in the past that the Thatcher Government raided the Contingency Reserve on more than one occasion and that our original incursion into Iraq was, supposedly, paid for out of the Reserve.  So how big is it?  Figures seem to be very hard to come by, but the overall Reserve seems to be close to 10%, so on 2008 figures, if it is 10% the country has a reserve of around £57Billion, which in my book is a huge amount of money.

Now the thorny subject of “I have to spend my Budget”.  In all the business’ I’ve worked in that draw up Budgets for the various departments, one thing more than anything else has attracted my attention.

  • Firstly, the current year’s Budget is ALWAYS based on the previous year’s budget, with an additional sum that usually is added to cover inflation
  • Secondly, ALL managers I’ve dealt with ensure that they spend their allocated budget, even if a portion, sometimes a substantial portion is effectively wasted by buying equipment or services that are not needed.  The old saying “What I want is not what I need” often applies, things are bought and paid for out of the Budget, they can usually be justified, but they are not necessarily needed to run the business, just they are wanted to make sure the budget is fully allocated and used.

So, the question is, are your Government Ministries any different? Have we had any Ministries come in under budget in the last ten years? I’m sure an FOI request would find out, but I think I can probably guess the answer without going to the expense.  Let’s, as a country, ask the Ministries to half their contingency reserves and hit their budgeted spending by spending money on what they need, not what they want.

As a further point, if anyone has details of how the budgets at the various Ministries are drawn up, I’d be very interested