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Peter Morgan

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Rolling Forecasts Instead of a National Annual Budget

Posted: 25/05/2012 20:13

I recently read an article at the Institute of Economic Affairs pushing for an alternative to the current national annual budget. This is something I have wanted for a long time and believe the current annual budget is inflexible and inefficient. The article explaining the limitations of the current methodology is below (http://www.iea.org.uk/blog/abolish-the-annual-budget).

I agree with the arguments against the use of an annual budget. However I would like to suggest an alternative method of dealing with government spending. I support the idea of a rolling forecast on a monthly basis that sets a regular review of how money is spent by the government. Unlike annual budgets the review of expenditure and the forwarding of funds are performed on a monthly basis. This prevents an overextension of capital from one department to another and also stops the funds being used up in the first few months through a misjudgement of future costs. If you would like to know more about rolling forecasts and the pro's and con's the link below provides a good introduction.

(http://www.cashfocus.com/what-is-rolling-forecast.htm)

I think a means tested review of how money is spent on a rolling forecast framework would reduce the cost of government departments, providing funding to services with the greatest requirements as a priority. The concept has been used in practical implementation throughout the accounting industry, which is where it originates. The Beyond Budgeting Round Table (http://www.bbrt.org/) is an international body, which pioneered the model and promotes the use of the system within management organisations.

It has mainly been adopted in the free market, although it is used by public sector institutions on a departmental level. I think that it is an ideal time to pursue the introduction of such a system on a national budgetary level. A more flexible spending mechanism would enable poor decisions to be undone quickly in addition to freeing up much needed money to be utilised elsewhere.

New technology enables the use of such a system to be introduced. New communication techniques and the availability of information that was not available in the past provide the plausibility of such a system to be developed. By adopting a national rolling forecast it would be taking government expenditure into the information age making a more effective and flexible system that would be the envy of the world.

 
 
 
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