Handout 11: Public sector finance PowerPoint presentation Unit 320 (B&A 59): Principles of business Handout 11: Public sector finance

Funded by the public through their taxes: centrally locally. Public sector finance Public organisations must have sufficient finance to fulfil their public service obligations. Funded by the public through their taxes: centrally locally. As previously stated, the main difference between private and public sector organisations lies in how they are financed. Public sector organisations do not have the facility to ‘make a profit’. The services they provide are funded by the government largely from public taxes.

duty on petrol, tobacco, alcohol, etc. Local taxes, eg business rates Sources of finance Central taxes, eg income tax VAT road tax stamp duty duty on petrol, tobacco, alcohol, etc. Local taxes, eg business rates council tax. Organisations may receive their funding either directly to the organisation through its own sources (eg local authorities receiving council taxes) or provided through direct grants from the Treasury via the controlling government department.

Funds from government borrowing Additional sources Funds from government borrowing Monies received for specific activities from the European Union Grants from the Treasury via the relevant government department Locally through car parking fees or hiring of leisure facilities, etc Additionally, organisations may receive funds from government as a result of borrowing or monies received for specific activities from the European Union. By meeting special conditions, they may be able to apply for grants from the Treasury via the relevant government department. Local authorities also have the option of raising revenue through car parking fees or hiring of leisure facilities, etc.

Budgets are set according to the Government’s priorities. Spending reviews Sets spending budgets over several years for each government department. Budgets are set according to the Government’s priorities. Government departments decide how best to manage and distribute this budget within their areas of responsibility. Central Government sets a periodic budget through HM Treasury for spending in the various areas of the public sector, known as a Spending Review. This sets firm and fixed spending budgets over several years for each government department, according to the Government's priorities. That is to say, that in any one Spending Review the Government may decide to spend more on, say, Education than on Health, depending on which it wishes to prioritise. It is up to the government departments to decide how best to manage and distribute this spending within their areas of responsibility. The public sector is a large one and there may not be enough revenue to provide all the finance required, in which case the Government may borrow money, nationally or internationally, to make up the shortfall.

Funding efficiencies Public organisations operate using public funds Essential not to waste money and use resources effectively. Organisations must: spend public money effectively make best use of their resources behave in an environmentally friendly way contribute to sustainable economies and communities. Limited funds means: cuts may have to be made prioritisation of services. As public sector organisations do not operate using funds they have raised themselves, but rather funds raised from the public, it is vital that they do not waste money and that all their resources are used effectively. Every public sector organisation therefore has a duty to spend public money effectively, ensuring the best use of their resources, behaving in an environmentally-friendly way and contributing to sustainable economies and communities. Due to the fact that there are not unlimited funds for public sector organisations, and no opportunities for the organisations to raise income themselves, sometimes cuts have to be made, or one service prioritised over another. Resources in the public sector are always limited and public demand for service is almost always greater. Sometimes organisations must put in place measures to ensure that those most in need receive the support they need, thus ensuring that public money is spent as effectively as possible and not wasted.

Commissioning and procurement Procurement – obtaining required goods or services. Competitive tendering process – invites companies to quote for the supplying the goods or services to ensure value for money. Commissioning – checking that a process or project has been carried out as required. One way of maximising funds is through the commissioning and procurement process. Procurement is obtaining required goods or services such as contracting another organisation to carry out a service. Local authorities may contract an organisation to collect the borough’s rubbish; NHS trusts need to purchase expensive equipment. Using a competitive tendering process to invite companies to quote for the supplying the goods or services is a way of ensuring the best value for money. Commissioning is a way of checking that a process or project has been carried out as required, accurately and completely.

‘... a large amount of public sector activity involves the commissioning and purchasing of goods and services. Doing so effectively requires a clear understanding of what will most appropriately address the needs or wishes of the service user, making use of market research, good planning, financial and performance management, sharing best practice and learning lessons.’ National Audit Office

The National Audit Office monitors central government. Monitoring The National Audit Office monitors central government. The Audit Commission monitors local public services. The National Audit Office is an independent, non-departmental public body that checks and reports on the way central government is run. It aims to hold government departments and bodies to account for the way they use public money, thereby safeguarding the interests of taxpayers. The Audit Commission performs a similar function at a local level, auditing local authorities, NHS bodies, police authorities and other local public services.