The Ministry of Justice has blamed ‘rustic’ forecasting techniques for projected overspending last year, but insists it is getting better at controlling its finances.
Giving evidence to the Commons justice select committee yesterday on the ministry’s 2015/16 accounts, permanent secretary Richard Heaton (pictured) said the department is working hard to improve its forecasting capabilities.
Heaton said: ‘When we put up civil fees, we projected a future volume which did not materialise. Something was unsatisfactory. We’ve had independent analytical consultants in to do a report on our modelling to see what went wrong.’
The report highlighted two ‘great uncertainties’, Heaton said. The first was human behaviour, which ‘is not very predictable on the back of things like fee increases. As opposed to price increases in the supermarkets, there just aren’t many comparators’.
The second was the quality of the data from cases going through the courts, which Heaton admitted had not been good.
In March 2015 the MoJ imposed court fee hikes of up to 660% for money claims, which statistics have suggested could be pricing small businesses out of the courts.
MoJ chief financial officer Mike Driver told the committee it was ‘fair to say the techniques we were using within the ministry to do some aspects of our forecasting were slightly rustic’.
He added: ‘We have put in place some systems to help improve the forecasting that we have – we are doing a lot more range forecasting, looking at uncertainty far more, doing simulation modelling around our financial forecasts far more than was the case previously.’
Last year the ministry requested an additional £427m of funding through a ‘supplementary estimate’. However, the final outturn was a £93m underspend against the estimate, the National Audit Office states in a departmental overview published today.
The 2015 spending review requires the department to achieve savings of 15% and halve its administrative budget by 2020.
The ministry is proposing to set forecasting targets for each of its budget-holders, with the aim of being able to forecast within 1% of its budget.
Driver said there had previously been ‘too little ownership’ of forecasting across the department, since it was ‘seen as something that finance was responsible for. We’re trying to change the culture’.
Heaton refused to apologise for introducing emergency spending controls last year, which caused a rift between the ministry and prison inspectors.
He said: ‘When I came in as permanent secretary 14 months ago and when it became clear just how far away from balancing our books we were, we reached for spending controls not because they’re a state-of-the-art measure for bearing down on discretionary spend, but because we had to do something very quickly and send a signal to the organisation that there was no money.’
Heaton acknowledged that the emergency spending controls were ‘necessarily a bit rough and a bit brutal’, with budget-holders required to submit, on a weekly basis, areas of discretionary spend for approval.
Heaton said: ‘There was quite a lot of bureaucracy, monitoring from the centre. It was probably felt by arms-length bodies that there was a breakdown of trust. I hope those relationships have been rebuilt.’
Budget-holders are still required not to use discretionary spend on, for instance, expensive conferences – but authority has been delegated ‘to a more appropriate level’.
Heaton said: ‘The controls are there but the process we hope we’ve lifted. I don’t make any apology for putting them in place a year ago because we had to do something.’
Highlighting efforts to improve the ministry’s commercial function and contract management, Heaton described the electronic-tagging ‘episode’ with G4S and Serco as a ‘pretty low moment’.
A specialist commercial team has been set up in Leeds, ‘instead of relying on expensive contractors down in London’, Heaton said.
He added: ‘If you asked me to score us on a maturity matrix, we are 2.5 out of 5. I’d like to be 4.5 out of 5. As in finances, we have some way to go, but it’s not an area anywhere close to where we were when we had the tagging fiasco.’
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