Not for the first time, a British politician has turned, without acknowledgement, to the good old US of A for an idea. In his speech to this year’s Labour party conference shadow chancellor Ed Balls said:

because we all know there can be no post-election spending spree, in our first year in government we will hold a zero-based spending review that will look at every pound spent by government: carefully looking at what the Government can and cannot afford, rooting out waste and boosting productivity.

My advice, Ed, is don’t do it. Sorry, I’ll put that more cogently. DON’T DO IT.

At its simplest, zero-based budgeting (ZBB) takes every line of a budget, asks what would be the consequences if it did not exist, and seeks a justification for any spend beyond that. If you’re not familiar with ZBB, Wikipedia actually has quite a good article on it.

ZBB has been around for decades. It started in the private sector, where it seems to have been used to examine relatively limited support functions in companies.

Once the academics and politicians got hold of it, however, it became a major endeavour in the public sector.

As a public sector manager, I experienced the joys of ZBB myself with the following results

  • The whole thing became a major industry. I and my colleagues spent endless, fruitless hours trying to align detailed budgets with programmes, objectives and policies
  • Neither the data for ZBB nor the software to manipulate it was available
  • The nature of public sector ‘budget lines’ meant one manager was forced to justify spend on a few thousand pounds, another on a million pounds. Both budgets received equal treatment in analysis
  • On the well-known principle that turkeys do not vote for Christmas, no manager came forward with any proposal significantly different from the position that current levels of spend on their budgets were absolutely essential
  • When the politicians got hold of ZBB data to help them make decisions they found it virtually useless and the next year’s budgets for that organisation were hardly different from the last

ZBB was never used again in that organisation, although every now and then proponents who hadn’t sweated blood over the previous exercise had to be taken quietly on one side to be told the truth about it.

I have no doubt any advocates of ZBB will be sharpening their keyboards even now to rebut my experience. My challenge to them is two-fold.

First, read the 1997 US General Accounting Office (GAO) report called Performance Budgeting. Past Initiatives Offer Insights for GPRA Implementation and its devastating insight on ZBB.

Second, show me where and how ZBB is used successfully in the public sector in the UK. Not just rumours that someone in Ontario or Western Australia has found it helpful, but actual documented proof about current successful use here.  I’ll eat my (virtual) hat if you can.

Here’s my prediction of what will happen if Balls holds his zero-based spending review if and when he’s chancellor in a future Labour government

  • There will be major upheaval in the civil service to support the exercise, distracting them from more pressing tasks
  • It will cost a lot, more than will be admitted
  • Consultants (oh yes, them) will probably be bought in to complete the exercise
  • Balls will have even fewer friends amongst his ministerial colleagues, who will all be rooting for their department in the review
  • The whole thing will make very little difference, if any, to future government spend and it will be quietly dropped in the next year.

My helpful tip for Ed would be to check out the GAO report I mention above. You don’t even have to go to Appendix V on ZBB (pp. 46-51). Page 6 has all you need to know:

The implicit presumptions of…ZBB — that systematic analysis of options could substitute for political judgment — ultimately proved unsustainable.

Enjoy!

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