There’s nothing as bad as an underspend
Being a ‘budget manager’ in local government can be a tough job. Some managers just have a few staff to look after and the budget is quite easy. However, at the other end of the spectrum some managers can have incredibly complicated budgets involving contracts, equipment, staff and innumerable other things to consider.
What makes the job even harder is that each manager has to predict at the start of each year how much they are going to spend and getting it wrong can have large consequences.
What confuses some people, including many of those I work for, is that under-spending that budget is just as bad as overspending it.
It is fairly easy to get your head around why an over-spend might be bad thing. The council would have to find money from its reserves or make further cuts to other services to make up for the extra money that you have spent. This would also have an impact on the budgets for the next year and generally put the council in a tricky situation.
However, under-spends can be just as bad and I think councillors are increasingly as intolerant of an under-spend as they are of an over-spend:
1) If you’ve over-projected your budget then it is entirely likely that you’ve made cuts to other services to make up for it at the beginning of the year. And whilst it is possible to make further cuts to services if you find that you’ve over-spent it is very difficult to un-close a service or re-start a service if you find that you have under-spent half way through the year and therefore didn’t need to make those cuts. Under-spending in this context is really bad projecting and that can have a major impact on other services.
2) There are also presentational problems. If you’ve under-spent your budget in year 1 and then claim you need the same money in year 2, possibly whilst other services are being cut, it becomes very difficult to justify those cuts. Trade Unions up and down the country are using council under-spends as a justification for opposing council cuts to staff terms and conditions. It’s difficult to justify a cut when you can’t even spend the money you already have budgeted for.
3) The purpose of a local council is to provide services to the local community. Whilst in some cases a bit of prudence is to be welcomed often if you’re not spending all of the funding you’ve budgeted to provide public services then it is possible you’re not providing the same level of services you could do if you spent the whole budget.
Taken together, under-spends are often treated as being as bad as over-spends by a local authority. A good council will ensure that managers are as relaxed about a small overspend as they are about a small under-spend and as uncomfortable with a large under-spend as they are with a large over-spend.
It just all seems totally counter-intuitive!
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