Published on 28 October 2024
Share Tweet  Share

Why Labour needs to abandon hyper-centralised financial control: lessons from the prisons crisis

As the Labour Government prepares for its first budget in 14 years, the release of 1,100 prisoners highlights pressing public service and fiscal challenges.  Sam Warner, Dave Richards, Diane Coyle and Martin J. Smith explore how hyper-centralisation and strict budget constraints have hindered prison managers, making the upcoming budget crucial for a more strategic approach to public financial management.

One week prior to the long-awaited first Labour Government budget in fourteen years,  the early release of 1,100 prisoners to ease overcrowding in English and Welsh prisons dominated the political headlines. It is the second such occurrence since Labour took office in July 2024.  Both the prison release scheme and the wider economic context surrounding what is being trailed as a flagship budget are inextricably interlinked.  They centre on a series of sizeable challenges the Labour Government has inherited regarding the degradation of public services in recent years, alongside one of the most challenging fiscal inheritances facing a new government. Labour’s  Chancellor, Rachel Reeves, reports a ‘black hole’ in the public finances of somewhere between £22 to £40 billion.  A global pandemic, a war in Ukraine and, of course, the disastrous Truss budget, all offer potential explanations for Britain’s fiscal challenges.  But they mask a wider set of longer-term drivers that are, in many ways, the root cause behind Labour’s parlous inheritance. The story behind the recent prison release scheme and the state of the Prison Service more widely, offers a microcosm of failings in the UK state.

Prisons are a primary case study informing our research exploring public expenditure planning and control over the last 40 years. Our evidence from a newly published article highlights a fundamental paradox underpinning the longer-term effects of New Public Management (NPM) style reforms and the goal of delivering both efficiencies and economies in the resourcing of public service. In the UK, NPM advocated devolved decision-making, financial flexibilities and managerial freedom from Whitehall to support the improved delivery of public services. Semi-independent agencies supporting practitioners at the frontline were intended to limit the worst excesses of ministerial activism. Success would be judged against longer-term output/outcome objectives.  But this has buffeted up against the centralising and controlling tendencies of HM Treasury which, alongside a wider Whitehall culture which frequently reasserts direct, top-down input controls, constrains the very managerial freedoms to deliver that NPM sought to instil.  

In part, this can be explained by a set of elite incentive structures and institutional norms at the heart of the UK governance system. But this only tells a partial story as the day-to-day consequences for prison managers are subsumed by the debate surrounding national fiscal priorities. It is only in recent weeks that the shocking state of prisons is being openly discussed. Yet, capacity pressures reflect only one element of a wider crisis in prison governance that has emerged under successive Conservative governments since 2010.

To ‘follow the money’, we conducted a series of interviews from frontline prison governors wrestling with annualised budgets through to actors with experience in His Majesty’s Prison and Probation Service (HMPPS), the Ministry of Justice and the Treasury. We reveal the tensions and contradictions underpinning the managerial reforms to public services over recent decades. The ‘appropriate’ balance between central control and financial flexibility is inevitably imprecise. But, in recent years, the scale has tipped too far towards ‘top-down’ public spending control, hyper-centralised governance arrangements in areas like finance, human resources and commercial services, and ministerial activism. The factors combine to subvert managerial freedom. Efforts to deliver continuous service improvement in outcomes and stewardship of the system are dramatically undermined.

A culture informed by rigid budgetary rules allows for few flexibilities at either the agency level or that of individual prisons. As a result, opportunities to be ‘creative’ with resources – once prized by experienced prison managers – are limited. In the context of annualised budgets and near constant firefighting, a culture of short-termism has become the norm. Crisis management means that decision-making is poorly evaluated and there is limited capacity for strategic prioritisation and policy implementation.  The hyper-centralised ‘functional’ model was sold as a way to promote professionalised financial management and concentrate expertise at the centre. However, our analysis shows that, unlike earlier agency level ‘Shared Service’ models designed with the Prison Service’s priorities in mind, the new Whitehall-driven approach is far less responsive to operational concerns.

Finance professionals and operational actors no longer work in lock-step. Finance and Human Resources Business Partners are detached from individual prisons and are thinly spread across multiple sites. Governing Governors – the most senior public managers in prisons – are subject to confused management structures, as regional Prison Group Directors and Finance Business Partners are not always aligned in terms of strategic priorities. Who should they listen to? The standardisation of commercial services can deliver economies of scale, but this mindset has gone too far. In the words of a former Chief Executive, the consequence is a ‘vanilla’ service that does not deliver public value.

Governors described themselves as ‘contract managers’ for agreements struck in Whitehall. Once simple maintenance jobs are now a struggle to deliver. In a world of centralised human resources, the recruitment and retention crisis feel beyond the control of individual establishments. Established governors described the loss of ‘incentives’ to be strategic with resources, with newer prison leaders admitting to being deskilled. Conversations about the relationship between financial management and the delivery of policy outcomes are now rare.

In the short term, easing capacity pressures is critical as prisons emerge from crisis. It remains to be seen whether the independent sentencing review led by former Justice Secretary, David Gauke, will deliver the cultural shift and reverse the flawed ‘prison works’ mindset. It is surely now beyond doubt that this approach has been both costly and ineffective. Our research suggests this is a necessary but insufficient condition for an improved Prison Service. A hyper-centralised governance model, in the context of fiscal squeeze and populist penal policy, has emasculated HMPPS and constrained senior prison managers. The new Government must also look carefully at the input-focused model of financial management and control that has been embedded in recent years. It has delivered short-term cost control at the expense of longer-term performance. Morale has suffered. This week’s Budget will say a lot about the Government’s top-level objectives. If it is serious about delivery, financial management must support operational actors to achieve improved outcomes, not simply short-term cost control. There is nothing ‘strategic’about a governance model that fails to hear the voices of those at the frontline.


The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.

Authors

Dr Sam Warner

Dr Sam Warner

Dr Sam Warner, Researcher on Nuffield Foundation funded project ‘Public Expenditure Planning and Control in Complex Times: A Study of Whitehall Departments’ Relationship to the Treasury (1993-Present)’, University of Manchester.

Prof Dave Richards
Diane Coyle 2018

Professor Diane Coyle

Bennett Professor of Public Policy and Co-Director of the Bennett Institute for Public Policy

Professor Coyle co-directs the Bennett Institute with Professor Kenny. She is heading research under the progress and productivity themes. Biography Professor Dame Diane Coyle is the Bennett Professor of Public Policy at...

Professor Martin Smith
Back to Top