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Strategic Public Finance > Section A - Sources of finance for public service organisations > Flashcards

Section A - Sources of finance for public service organisations Flashcards

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1
Q

What are the 3 basic functions of government?

A
  1. Meeting the social needs of its population when teh market fails to meet such needs
  2. Ensuring macroeconomic stability
  3. Ensuring an environment where business can operate economically
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2
Q

The economic shock of the 2008 financial crisis gave need for a refocusing of public finances. What are the 3 options of refocusing?

A
  1. Increasing revenue
  2. Decreasing expenditure
  3. Combination of both
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3
Q

What is meant by defict in public finances?

A

There is an excess in the expenditure of a country over the income.

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4
Q

What is meant by primary deficit in public finances? What can it be used for?

A

This is the deficit of a country exluding interest payments. It can be used to assess the sustainablility of a deficit and in discussions with creditors such as IMF.

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5
Q

What is a structural deficit in public finance?

A

This is where deficit is calculated over the economic cycle.

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6
Q

What are automatic stabilisers?

A

Automatic stabilisers are the systems in place that create an automatic response to economic cycles. For example, in times of downturn, unemployment rises. The automatic stabiliser is the welfare system that automatically kicks in to pay unemployment benefits. Ie there are no policy changes.

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7
Q

When is a deficit sustainable and what is the formula for sustainable deficit?

A

When the deficit does not increase the stock of debt as a percentage of GDP.

Sustainable deficit = (g-r) (d/GDP)

G= growth rate of economy
R= interest rate government pays on debt
D= Stock of debt

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8
Q

When a deficit is not sustainable, what are the policy options?

A
  1. To increase growth
  2. To reduce debt
  3. To reduce interest rates
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9
Q

When is debt sustainable?

A

When the debt can be serviced ie can the interest and the principal be paid when it falls due? If it cannot then the the country will either default or need assitance from the IMF.

Ie. when: Debt < Net present value of future cash flows

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10
Q

What is the inter-temporal position?

A

This looks at the sustainability of debt. Debt is suatainable when Debt < Net present future cash flows.

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11
Q

What constitutes the public sector according to the IMF?

A

Central governement:
* Central government
* State Government
* Local Government
Public Corporations:
* Financial public corporations
* Non-financial public corporations
* Moetary public corporations (inc. Central Banks)
* Non-monetary public corporations.

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12
Q

What are the 3 objectives of the IMF framework for debt sustainability analysis (DSAs)?

A
  1. To assess the current debt situation,its maturity structure, whether it has fixed or floating rates, whether it is indexed and by whom it is held.
  2. Identify vulnerabilities in debt structure or the policy frameworek far enough in advance so that policy corrections can be introduced before payment difficulties arise.
  3. In cases where such dificulties have emerged or are about to emerge, examine the impact of alternative debt-stabilizing policy paths.
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13
Q

What is Public Sector Net Debt?

A

Financial Liabilities issued by the public sector less its holdings of liquid financial assets.

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14
Q

What are the 3 roles of the OBR?

A
  1. To provide economic forecats and independant analysis of the UK’s public finances.
  2. Advise whether fiscal policies are likely to meet targets set by cabinet.
  3. To evaluate the sustainability of the UK’s public finances.
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15
Q

How often do the OBR produce a five year forecast for the economy?

A

Twice a year.

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16
Q

What are 3 reasons a medium term outlook on government budgeting necessary?

A
  • The time span of an annual budget is too short for the purpose of adjusting expenditure priorities.
  • When a budget is formulated, most of the expenditure is already commited. Ie Salaries and pensions of civil servants.
  • For an adjustment to spending priorities to be sucessful it must take place over a span of several years. Eg. an adjustment to welfare will have financial implications over a number of years.
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17
Q

What is essential to the formulation of the annual budget, assessment of budget policies and identification of desireable policies?

A

Preperation of a medium term macroeconomic framework.

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18
Q

What are Macroeconomic projections?

A

Projections are based on a definition of targets and instruments in areas such as monetary policy, fiscal policy ect.

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19
Q

What are the 2 main starting points for the preperation of annual budgets?

A
  1. A clear definition of fiscal targets.
  2. A strategic framework, consisting of a comprehensive set of objetives and priorities.
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20
Q

What 4 multi annual factors should be taken into account when preparing a budget?

A
  1. The forward costs of ongoing investment projects/programmes, including their recurrent costs.
  2. Future funding needs of entitlement programmes where expenditure levels may change.
  3. Contingencies or other commitments which may result in future spending requirements.
  4. Impact of fiscal deficit on the costs of servicing public debt.
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21
Q

Why should policy proposals be considered and reviewed outside of the budget process?
2 reasons

A
  1. Making policy through annual budgets would give prominance to short term issues rather than long term strategic issues as the policy debate would be dominated by immediate financial considerations.
  2. Policy should be formulated based on an overall strategic framework based on thorogh analysis.
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22
Q

What 5 main factors should be included in the strategic plans of ministries and agencies?

A
  1. Their mandate
  2. A set of desired policy goals (outcomes and objectives)
  3. The broard approaches to achieving these goals
  4. A description of the concrete policy measures that will be used to achieve these goals.
  5. A broard cost estimate
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23
Q

The link between policy and the budget process is essential. What 2 clear rules should establish this link?

A
  1. The resource implications of a policy change should be established before a policy decision is taken and any entity proposing policy decision changes should quantify their effects on public expenditure its own and other government departments.
  2. The treasury department should be consulted in good time about all proposals involving expenditure before they are reviewed by ministers.
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24
Q

What is the aim of a Medium Term Economic Framework (METF)?

A

To allow the linking of a governments budget with economic projections over a 3-5 year period.

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25
Q

What are the 3 roles of the Debt Management Office?

A
  1. Oversee debt and cash management for the government.
  2. Oversee lending to local authorities
  3. Oversee the managing of certain public sector funds.
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26
Q

What are Treasury bills and what are they used for?

A

They are government financial instruments that have a maturity period of less than a year. They are used for short term financing.

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27
Q

What is the state owned savings bank of the UK?

A

National Savings and Investments Agency (NS&I)

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28
Q

What is the historical aim of the NS&I?

A

To attract funds from individual savers in the UK for the purpose of funding the governments net cash requirements.

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29
Q

What is the argument against financing from internal/domestic debt?

A

It may “crowd out” the private sector as there might be an increase in the interest rate and the cost of borrowing for the private sector. This could hold back growth.

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30
Q

What is the monetarist view on an expanision of puiblic expenditure financed through debt?

A

That an expansion in public expenditure can displace or crowd out an equivalent magnitude of private expenditure.

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31
Q

What are the 2 factors that impact the monetarist veiw on expansion of public expenditure through debt?

A
  1. That if there is limited/finite credit withion institutions (as is often the case) then an increase in credit used by the government will inevitably reduce the credit available to priate sectors.
  2. The demand for credit by a government can see the interest rates for credit go up which will have an effect on private sector borrowers.
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32
Q

What advantage does foreign debt bring?

A

It brings investment into the country and reduces the crowding out effect.

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33
Q

What are 2 main disadvantages to financing through the use of foreign debt?

A
  1. Interest on foreign debt leaks from the econonmy.
  2. It carries significant exchange rate risks
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34
Q

What are 3 fiscal constraints the Uk has implemented when it comes to Government debt since 1992?

A
  1. The bank of England was given independance and control of setting interest rates.
  2. Introduction of the “Golden Rule”.
  3. The “Sustainable Investment Rule”
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35
Q

What is the “Golden Rule” when it comes to Government Debt?

A

Averaged out over the economic cycle, borrowing should only be for investment (Revenue budget balanced or in surplus).

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36
Q

What is the “Sustainable Investment Rule”?

A

That public sector net debt should not exceed 40% of GDP.

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37
Q

What are the 5 key questions around government taxation as a source of funding?

A
  1. Should the consumer pay firectly for the services provided?
  2. Can the service be priced at a profit or a loss?
  3. Which ‘public good’ should be provided?
  4. Should taxes be used to alter behaviour?
  5. Should taxes be used to ensure economic efficiency?
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38
Q

What are the 3 approaches to using taxes to alter behaviour?

A
  1. Pigouvian taxes
  2. Using taxes to protect domestic interests such as key industries or social policies.
  3. To adress martket failures.
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39
Q

What are Pigouvian taxes?

A

Pigouvian taxes are where externalities of an activity are internalised. For example, an environmental tax aims to link the cost of cleaning up polution with the the cost of the product causing the polution via a tax on the company producing.

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40
Q

What is the aim of Pigouvian taxes?

A

The aim is to include the social cost in the price of a product.

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41
Q

What is a market failure?

A

When a market is left to its own devices and fails to supply certain goods in quantities or at prices that the government consideres desireable.

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42
Q

What are the 4 key market failure examples?

A
  1. Public goods
  2. Externalities
  3. Merit goods
  4. Natural monopolies
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43
Q

What are the 2 key features of public goods?
What is an example of one?

A
  1. They are non-excludable - you cannot exclude people using them if they have not paid for them.
  2. They are non-depletable - they are not used up through their use.

Street lights

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44
Q

Why are there market failures around public goods?

A

Because it is not possible to charge for them and so the market will not provide them.

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45
Q

What are Externalities?

A

The side effects of economic activity.

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46
Q

What are 2 example of positive and negative externalities?

A

Positive:
1. Training
2. Education
Negative:
1. Training
2. Education

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47
Q

What effect can taxation have on negative externalities?

A

Taxation can discourage the use of certain products or services by placing the full costs of the negative externalities onto the supplier and therefore the consumer.

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48
Q

What effect can taxation have on positive externalities?

A

Taxation can encourage the use of good or services with positive externalities by subsidising the cost of them.

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49
Q

What are Merit goods?

A

Good which when left to their own devices the public would consume less of than the government desires. E.g education & pensions.

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50
Q

What are Demerit goods?

A

Goods which when left to their own devices people would consume more of than the government consideres desirable. E.g Alcohol & Cigarettes.

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51
Q

How can taxation be used in relation to merit good and demerit goods?

A

It can be used to subsidise and encourage use of merit goods or increase the market price and discourage the use of demerit goods.

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52
Q

What is a natural monopoly?

A

Where provision of large-scale infrastructure such as railways and electricity grids are so expensive that is is only financial viable to be provided by a monopoly supplier.

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53
Q

Are dual purpose taxes likely to be effective?

A

Not neccessarily, it was found that a tax on tobacco or alcohol was more likely to make a poor family reduce visits to the dentist than their alcohol consumption. - Harold Groves

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54
Q

What are the advantages of combining a tax and welfare system?

A

It can reduce inefficiencies in operational efficiency and allocative efficiency.

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55
Q

What is the operational inefficiency between the tax and welfare system?

A

The inefficiency is the cost of collecting taxes whilst at the same time paying benefits. It is also the cost of information cross refencing between the tax and benefit system.

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56
Q

How can allocative efficiency be improved?

A

By reducing the number of tax payers and welfare beneficiaries.

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57
Q

True/False: Globalisation has had a negative effect on the development of tax systems.

A

False.

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58
Q

What 2 negative behaviours has globalisation enabled on tax administration and policy?

A
  1. Companies and individuals can minimise and avoid taxes.
  2. Exploitation of opportunities by countries aiming to divert capital through the use of taxes
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59
Q

What 3 negative effects can globalisation have on a countries tax system due to the change in behaviours around tax?

A
  1. It can errode national tax bases.
  2. It can alter the structure of taxation by shifting the tax burden from income to consumption.
  3. It can hamper the application of progressive tax rates and the achievement of redistributive goals.
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60
Q

What 2 approaches can a country take to combating tax competition?

A
  1. Unilateral appraoch - Rules on taxing income for foreign corporations and investments and rules on foreign information reporting.
  2. Bilateral & Multilateral approach - Through tax treaties.
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61
Q

What is International Aid?

A

International Aid is the international transfer of capital, goods or services from a country or international organisation for the benefit of the recipiant country or its population.

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62
Q

What is Official Development Assistance?

A

Official Development Asistance is typically called International Development Aid and is defined as the international transfer of public funds either directly from one government to another or in-directly through non-governmental organisations or multilateral agency.

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63
Q

Which 5 countries recieved the highest levels of Official Development Aid (ODA)?

A
  1. Syria
  2. Ethiopia
  3. Bangladesh
  4. Afghanistan
  5. Yemen
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64
Q

What are the 2 types of ODA?

A
  1. Bilateral ODA
  2. Multilateral ODA
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65
Q

What is Bilateral ODA?

A

Where ODA flows directly from government donor sources to official sources in the recipiant country.

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66
Q

What is Multilateral ODA?

A

When ODA is provided via a multilateral agency such as an agency of the UN. The aid is used to fund the multilateral organisations own programmes.

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67
Q

What is the UK’s level of ODA?

A

0.5% of GDP or around £11.4 Billion

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68
Q

What is non-financial aid?

A

The international transfer of resources other than financial grants or gifts. E.g tractors or food.

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69
Q

What is direct assistance?

A

Direct assistance is aid channelled through budget support for aid-recipient nations or through grants and contracts to non-government organisations in these countries.

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70
Q

Give an example of direct assistance and non-financial aid.

A

United Nations World Food Programme which is a frontline agency tasked with combating hungar globally by providing food assistance.

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71
Q

What 5 forms may International Development Aid take in terms of financial aid?

A
  1. Grants
  2. Loans
  3. Debt relief
  4. Heavily Indebted Poor Countries Initiative
  5. Equity
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72
Q

What is a grant?

A

Transfers made in cash, goods or services for which no repayment is required.

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73
Q

What 2 catagories does the OECD give grants?

A
  1. Aid grants excluding debt reorganisation
  2. Subsidies to national private investors
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74
Q

What are Grant-Like Flows?

A

A transaction in which the donor country retains formal title to repayment but has expressed the intention to hold the proceeds of repayment in th4e borrowing country for the benefit of that country.

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75
Q

What are the 5 types of loans classified by the OECD in association with ODA?

A
  1. Aid loan excluding debt reorganisation
  2. Investment related loan to developing country
  3. Loan in a joint venture with the recipient
  4. Loan to a national private investor
  5. Loan to a national private exporter
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76
Q

What is ‘Debt Relief’ defined as by the OECD?

A

Debt Relief is any form of debt reorganisation which relieves the overall burden of debt.

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77
Q

In what 3 key forms may debt relief take?

A
  1. Debt cancellation
  2. Debt rescheduling
  3. Official Bilateral debts
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78
Q

What is debt cancellation?

A

Debt cancellation is relief from the burden of repaying both the principal and interest on past loans.

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79
Q

What is debt rescheduling?

A

Relief by which the dates on interest repayments are delayed or rearranged.

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80
Q

What are official bilateral debts?

A

Debts that are reorganised in the Paris Club of official bilateral creditors.

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81
Q

What is the heaviliy indebted poor countries (HIPC) initiative?

A

It is a comprehensive approach to debt reduction for heavlily indebted poor countries pursuing IMF and world bank supported reform programmes.

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82
Q

What is the aim of the HIPC initiative?

A

To ensure that no poor country faces a debt burden it cannot manage.

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83
Q

The HIPC is a two step process. What are these steps?

A
  1. Decision Point
  2. Completion point
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84
Q

What is the decision point in the HIPC initiative?

A

The point at which the IMF and world bank formally determine if a country is eligable for debt relief. Countries must have met certain qualifications including income thresholds.

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85
Q

What is the completion point in the HIPC initiative?

A

This is when the countries recieve the balance of debt relieffrom the international community. To reach this point countries must have achieved certain refunds and taken concrete steps to reduce poverty.

86
Q

Name 3 countries which are at the post completion stage of the HIPC initiative as of 2017.

A
  1. Afghanistan
  2. Chad
  3. Ghana
87
Q

What is equity in relation to ODA?

A

Equity is where investment is made in a recipient country without the aim of acquiring a long term interest in the project or organisation.

88
Q

In relation to ODA, what types of equity investment is there?

A
  1. Acquisition of equity as part of a joint venture with the recipient.
  2. Acquisition of equity not part of a joint venture in developing countries.
  3. Other acuisition of equity
89
Q

What is meant by fungibility of aid?

A

It is when funds intended for a particular purpose are used for a different purpose.

90
Q

What are the 5 fundamental pricipals for aid effectivness as per the Paris declaration?

A
  1. Ownership
  2. Alignment
  3. Harmonisation
  4. Results
  5. Mutual Accountability
91
Q

What is meant by the ownership principal of the paris declaration?

A

Developing countries set their own strategies for poverty reduction, improve their institutions and tackle corruption.

92
Q

What is meant by the Alignment principal of the paris declaration?

A

Donor countries align behind these objectives set by the recipient country and use local systems.

93
Q

What is meant by the Harmonisation principal of the paris declaration?

A

Donor countries coordinate, simplify procedures and share information to avoid duplication.

94
Q

What is meant by the Results principal of the paris declaration?

A

Developing countries and donors shift focus to development results and results get measured.

95
Q

What is meant by the Mutual Accountability principal of the paris declaration?

A

Donors and partners are accountable for development results.

96
Q

What were the 3 improvements suggested by the Accra Adgenda for Action on the Paris declaration?

A
  1. Ownership - countries have more say over their development processes through wider participation in development policy formulation, stronger leadership on aid coordination and more use of country systems for aid delivery
  2. Inclusive partnerships - All partners - including donors in the OECD development assistance Committee and developing countries as well as other donors, soundations and civil societies - participate fully.
  3. Delivering results - Aid is focused on real and measurable impact on development.
97
Q

What are the 4 pricipals of aid effectivness set out by the Busan partnership?

A
  1. Ownership of development priorities by developing countries.
  2. A focus on results
  3. Partnerships for development
  4. Transparency and shared responsibility
98
Q

What was the most important lesson learned between the Paris declaration and the Busanm Partnership?

A

The importance of a monitoring tool for partners to hold each other accountable to their commitments.

99
Q

What is meant by impact of aid?

A

Positive and negative, primary and secondary long term effects profuced by a development intervention, directly or undirectly and intended or unintended.

100
Q

What is a potential unintended effect of aid providing 1000’s of mosquito nets to a community in Africa?

A

The local market is flooded with foreign mosquito nets so the local net maker is put out of business and his workers are unable to support their families.

101
Q

When evaluating the impact of Aid, what 3 key questions should be asked?

A
  1. What has happened as a result of the programme or project?
  2. What real difference has the activity made to the beneficiaries?
  3. How many people have been affected?
102
Q

What is “Sustainable Development”?

A

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

103
Q

What does PEFA stand for?

A

Public Expenditure and Financial Accountability.

104
Q

What 3 things does the PEFA programme focus on?

A
  • Country ownership
  • Coordinated donor work
  • Monitoring of improvements in country systems.
105
Q

What is the purpose of the PEFA framework?

A

To assess the condition of a countries public expenditure, procurement and financial accountability systemsand develop a practical sequence for reform and capacity building actions.

106
Q

What is the PEFA framework? And what 3 things does it assess

A

It is a diagnostic tool developed to assess strengths and weaknesses of public financial management for countries and too assess whether a country has the tools to deliver:
1. Aggregarte fiscal discipline
2. Strategic resource allocation
3. Efficient use of resources for service delivery

107
Q

What is the goal of the PEFA programme?

A

To assess the status of a countries PFM systems and develop a practical sequence of reform and capacity development actions.

108
Q

The PEFA framework aims to achieve its goal in a manner that…

6 key points

A
  1. Encourages country ownership
  2. Reduces tranaction costs to countries
  3. Enhances donor hamonisation
  4. Allows monitoiring of progress of country PFM performance over time
  5. Better addresses development and fiduciary concerns
  6. Leads to improved impact of reforms.
109
Q

How many performance indicators are there in the PEFA framework?

A

31

110
Q

What are PEFA’s 7 pillars?

A
  1. Budget reliability
  2. Transparency of public finances
  3. Management of assets & liabilities
  4. Policy-based fiscal strategy & budgeting
  5. Predictability & control in budget execution
  6. Accounting & reporting
  7. External scrutiny & audit
111
Q

What is a PEFA indicator for Budget Reliability?

A

Revenue outturn

112
Q

What is a PEFA indicator for transparency of public finances?

A

Public access to fiscal information

113
Q

What is a PEFA indicator for management of assets & liabilities?

A

Debt management

114
Q

What is a PEFA indicator for policy-based fiscal strategy & budgeting?

A

Macroeconomic & fiscal forcasting

115
Q

What is a PEFA indicator for predicatability and control in budget execution?

A

Internal audit

116
Q

What is a PEFA indicator for accounting & reporting?

A

Annual financial reports

117
Q

What is a PEFA indicator for external scrutiny and audit?

A

External audits

118
Q

How often should assessments applying the PEFA framework take place?

A

Every 3 to 4 years

119
Q

In what 4 ways has the PEFA framework benefited countries?

A
  1. By delivering a credible and evidence based diagnostic that can be compared over time to monitor results of PFM reforms.
  2. Enabling governments to lead PFM assessments or become activly involved in work lead by external agencies through a clear and specific assessment framework.
  3. By providing harmonization and standardisation of the information requested by external agencies using a common assessment tool.
  4. Promoting “capacity development” throough peer learning and regional PFM groupings.
120
Q

What 2 main frameworks determine the direction and focus of international aid?

A
  1. Millennium Development Goals
  2. Sustainable Development Goals
121
Q

What replaced the 2015 MDG’s?

A

2016 Sustanable Development Goals

122
Q

What is meant by sustainable development?

A

Development that meets the needs of the present without compromising the abbility of future generations to meet their own needs.

123
Q

Give 3 examples of SDG’s?

A
  1. End poverty in all forms everywhere
  2. End hunger, achieve food security and improved nutrition and promote sustanable agriculture.
  3. Ensure healthy lives and promote wellbeing for all at all ages.
124
Q

What are the 2 oversight bodies for International Aid within the UK?

A
  1. International Development Committee (IDC)
  2. Independent Commission for Aid Impact (ICAI)
125
Q

What is the purpose of the International Development Committee

A

It is responsible for the scrutiny of UK aid and ODA expenditure.

126
Q

What is teh purpose of the Independent Commission for Aid Impact?

A

To provide independent evaluation and scrutiny of the impact and value for money of all UK government ODA.

127
Q

True/False: The ICAI contributes to the accountability of the UK’s ODA to the UK taxpayer.

A

True

128
Q

What are the 3 main arguments around the ethics of International Aid?

A
  1. That international development aid should be provided simply because it is a moral duty to help those in need.
  2. Whether the actual impact of aid, intended or unintended is ethical.
  3. The motives for giving aid and whether the process of giving aid is ethical.
129
Q

What is tied aid?

A

Tied aid is when international development aid is given with the condition that it is used to procure goods or services from the donor of the aid.

130
Q

What is the ethical concern around Tied Aid?

A

That the motive behind Tied Aid may infact be to benefit the donor country rather than using suitably qualified staff/goods fcrom the recipient country.

131
Q

What are the UK’s 4 priorities for aid that enable transparency about why they give aid?

A
  1. Reliable investment to help UK partners grow sustainably and mobbilise up to £8 billion of UK backed financing.
  2. Empowering women & girls, with a focus on ensuring girls recieve 12 years of quality education, supporting reproductive and sexual health and ending violence against women and girls.
  3. Provide life saving humanitarian assistance to those in greatest need and work to prevent crisis and build resilience to them.
  4. Climate change, biodiversity and global health. This strategy confirms climate change and biodiversity as the Uk’s “Number one” international priority.
132
Q

WHat are the 3 possible reasons for giving aid?

A
  1. Moral argument
  2. Enlightened self-interest
  3. Naked self interest
133
Q

What is meant by enlightened self interest as a reason for giving aid?

A

Dealing with overseas problems to reduce liklihood of them becoming problems at home.

134
Q

What is meant by enlightened self interest as a reason for giving aid?

A

using aid as a lever with which to secure economic, diplomatic, intelligence or military favour.

135
Q

What is a risk when using quantatative targets as a means for assessing aid effectivness?

A

There is a risk that projects will be chose because it will be easy to demonstate impact as opposed to doing what is best to promote devlopment.

136
Q

What are 3 example of the duties of the CFO of a donor organisation?

A
  1. Set a budget that shows how the activities will be resourced and what the cost will be.
  2. Be aware of what income streams are available now, and what are planned or available for the future.
  3. Lead due diligence to ensure processes are in place to minimise risk of loss in transit of aid as a result of corruption.
137
Q

What are 3 examples of the duties of the CFO of a recipient organisation?

A
  1. Be aware of any conditions that are attached to the aid recieved.
  2. Establish a control framework to ensure spending is within any conditions.
  3. Establish a method of collecting data that proves compliance.
138
Q

What is the purpose of the UK Government “Spending review”?

A

It forms the basis of the governments plans for public finances at a national level.

139
Q

Over how many years does the “Spending review” plan?

A

The following 3 years.

140
Q

How often does the OBR produce budget forecats?

A

Twice a year.

141
Q

Why is the “Spending Review” useful?

A

It is a useful reference point for forecasting the scale of government support to public sector organisations over an extended period.

142
Q

What are the 3 main sources of income for a local authority?

A
  1. Council Tax
  2. A proportion of business rates raised within the authority
  3. Funding from central government
143
Q

What is the main bundle of government grants to a local authority called?

A

Local Government Finance Settlement

144
Q

How is the Local Government Finance Settlement calculated?

A

A “Settlement Funding Assessment” is undertaken which includes Revenue Support Grant and Baseline funding level ie its ability to raise its own revenue.

145
Q

What is meant by Local Taxation?

A

Taxation that is raised and collected by Sub-national governments.

146
Q

True/False: Police and Fire organisations may sometimes be given powers to levy taxes.

A

True.

147
Q

What is the role of sub-national governments?

A

To allow for local democracy processes to fulfil the concept of “subsidiary” allowing levels of government best placed to make local decisions.

148
Q

Fiscal decentralisation involves decentrailisation of?

A
  1. Tax instruments, such as when local governments are given the power to raise taxes.
  2. Expenditures, such as when local governments bear the resonsibility for implementing expenditure functions.
  3. Both
149
Q

What are the 2 main arguments for greater centrailsation of fiscal policy?

A
  1. More able to contribute to competetivness.
  2. An economy can be more productive in increasing its allocative efficency.
150
Q

What factors mean greater centralisation increases allocative efficiency?

A
  1. Avoidance of high compliance costs
  2. By having a more centralised system it should reduce complexity and therefore the costs ofd compliance.
  3. removes tax obsticles to cross border activity - this will reduce the costs of tax complaince
151
Q

What is an argumenmt against greater centrailsation?

A
  1. The sovereignty of nation states (giving this up to supernational organisations such as EU)
152
Q

What are the 3 main agruments for greater decentrailisation?

A
  1. Greater demoocratic engagement
  2. Improved allocative efficiency
  3. Improved opperational efficiency
153
Q

What are the 4 specific agruments in favour of greater decentralisation?

A
  1. Sub-national governments know better what local people want/need.
  2. Sub-national governments have a better idea of best local sources of revenue.
  3. Sub-national governments can provide services more efficiently. Ie Operational efficiency
  4. Local representation should increase access to marginalised groups, promote opportunity and allow greater scruitiny of political choices.
154
Q

What are 6 arguments against greater decentarisation?

A
  1. There may be a lack of capcity or skills at local level.
  2. Risk of extra layer of corruption.
  3. Replication of systems and reduction in operational efficiency.
  4. Need for local knowledge may not be there. EG in small states such as singapore or monaco.
  5. There may be a lack of co-ordination between different agencies.
  6. May be difficult to link local policies to national policies.
155
Q

What is the primary role/purpose of local taxation?

A

The provision of local goods and services.

156
Q

What are the 5 main sources of local income?

A
  1. Property taxes
  2. User charges/fees
  3. License fees
  4. Levies on properties for infrastructure improvement.
  5. National taxes
157
Q

What was the purpose of the Localism act 2011

A

The purpose of the Localism Act 2011 was to abolish the previous capping of council tax and instead trigger refurrendums when a coucil would set a council tax outside of pre-announced council tax principals by the government.

158
Q

What factors is council tax calculated on?

6 factors

A
  1. Projected spending for the year
  2. Level of central government support
  3. Any retained business rates
  4. Amount of income anticipated from fees & charges
  5. Projected income from other sources
  6. Anticipated use of reserves or balances
159
Q

What are non-domestic rates based on?

A
  1. The rateable value
  2. NDR multiplier set by central government.
160
Q

What are 4 exemptions for NDR’s?

A
  1. Agricultural properties
  2. Fish farms
  3. Small rural business’
  4. Properties located in enterprise zones
161
Q

WHat are 5 examples of criteria for evaluating local taxes?

A
  1. Efficiency
  2. Equity
  3. Simplicity and administration cost
  4. Certainty
  5. Breadth of tax base
162
Q

WHat is meant by efficiency in terms of evaluating local taxes?

A

An efficient tax is one that minimises the effect it has upon economic choices and behavious.

163
Q

What is meant by equity in terms of evaluating a local tax?

Ability to pay and benefits recieved

A
  1. A tax will be equitable if the amount that people are required to pay increases in proportionm to their ability to pay.
  2. A tax will be equitable if the amount that people are required to pay reflects the value of the benefits they recieve from public expenditure.
164
Q

What is meant by simplicity & low administration cost in terms of evaluating a local tax?

A

The tax is simple and easy to administer.

165
Q

What is meant by certainty in terms of evaluating a local tax?

A

A certain tax is one for which people can identify or forecast their tax liability in different circumstances with certainty.

166
Q

What is meant by breadth of tax base in terms of evaluating a local tax?

A

This refers to the number of taxpayers and the number and types of tax. A wider tax base is supposed to increase accountability for local services. Narrow tax bases mean that people can vote for expenditure that they will not themselves fund.

167
Q

What is gearing referring to in terms of local authority funding?

A

Gearing refers to the ratio of central government grants as a proportion of total funding. (other side is local sources of funding)

168
Q

What is the gearing effect in terms of local government funding?

A

Where there is a high percentage of local authority expenditure funded by government grants, a reduction in the grant has a disproportionate impact. (for a ratio of 4:1, a 5% grant reduction needs 25% increase from other sources to balance)

169
Q

The balance of funding review identified 7 issues wit the current balance of funding between central government grants and local funding. What are these?

A
  1. Transparency & inteligability
  2. Accountability
  3. Stability & predictability
  4. Freedom and flexibility
  5. Efficiency
  6. Democratic participation
  7. Equalisation
170
Q

How are devolved governments in the UK funded?

A

They are funded via a block grant which they then have significant discretion over how is distributed.

171
Q

What is a Public Private Partnership(PPP)?

A

A PPP is a long term contract between a private party and a government entity for providing a public asset or service in which the private party bears significant risk and management.

172
Q

What is the role of a Public Private Partnership?

A

To combine the respective strengths of the public and private sector in the delivery of public infrastructure and services.

173
Q

What are the 3 main types of PPPs?

A
  1. The introduction of private sector ownership into state-owned business’, using a range of possible structures. (Non-PFI)
  2. PFI and other arrangements where the public sector contracts to purchase services on a long term basis.
  3. Selling government services into wider markets and other partnership arrangements to exploit the commercial potential of government assets.
174
Q

What are the 3 objectives of the UK Government Investment (UKGI) Company?

A
  1. Preparing and executing all significant corporate asset sales by the UK government.
  2. Advising on other major corporate finance matters.
  3. Acting as a shareholder for, and lead establishment of, UK governments arms length bodies.
175
Q

In the conventional procurement PPP, who retains the risks assosiated with ownership, performance and service integration?

A

The public sector body

176
Q

What is the underlying principal belief of a PPP?

A

That the private sector is better able to provide one or more elements of the service than the public sector.

177
Q

What is the attraction for a private company to enter into a PPP?

A

The opportunity to make profits over a long period with a limited level of risk and guaranteed future cash flows.

178
Q

What is the governments perspective on PPPs?

A

That the private sector is better at identifying and managing economic risks due to economic drivers.

179
Q

In order for the economic benefits of a ppp to be realised who should hold:

A: the economic risks?
B: the political and policy risks?

A

A: The private sector
B: The public sector organisation

180
Q

What are 2 PPP alternatives to PFI?

A
  1. Partial Privatisation
  2. Local Improvement Finance Trusts
181
Q

What is a Partial Privatisation?

A

Schemes in which private sector investors purchase a minority (or majority) take in a public sector organisation.

182
Q

What is a Local Improvement Finance Trust (LIFT)?

A

A LIFT is a limited company set up with local NHS bodies, Community Health Partnerships and private sector bodies as shareholders.

183
Q

What was the 1970’s theory behind Charging in the public sector?

A

That the public sector faced fewer incentives to encourage or drive efficiency and effectivness when compared to the private sector.

184
Q

A charging policy for a public sector organisation must…?

4 points

A
  1. Be legal
  2. Meet the organisations objectives
  3. Be affordable in terms of sustainable service delivery
  4. Maintain a service level that is acceptable
185
Q

What is a constraint in public sector charging?
A: Statutory requirements
B: Market forces
C: Commercial viability

A

A: Statutory requirements

186
Q

What are the 7 desireable charactaristics of a charge for a public sector organisation?

A
  1. Easiliy determined and calculated
  2. Equitable
  3. Transparent and understandable
  4. Sufficient
  5. Compatible with other objectives
  6. Related to ability to pay
  7. Cost-effective
187
Q

What are 5 possibble charging methods for a public service organisation?

A
  1. Variable costsing
  2. Full cost charging
  3. Full cost plus profit margin
  4. Going rate charges
  5. Minimum standards
188
Q

What services can councils charge for?

A

Any service provided on a discretionary or non-statutory basis.

189
Q

True/false: Accorinding to the Local Government Act 2003, income raise from charging should exceed the full cost of proving a service.

A

False. It should not exceed the full cost of providing the service.

190
Q

What 2 circumstances can a loacl authority charge for public health activities?

A
  1. Where the activity relates to an organisation not an individual.
  2. Where the activity relates to an individual, but is not for the purpose of improving that individuals health. Eg training an individual to provide public health advice.
191
Q

The Localism Act 2011 provides local authorities with a “general power of competenace”. What is this?

A

It means that local authorities are free to do anything an individual can do, provided they do not break existing laws. Ie they cannot impose a new tax as an individual cannot do this.

192
Q

What are 2 advantages of local authorities being given a “general power of competance”?

A
  1. It gives them more freedom to work together with others in new ways to drive down costs.
  2. It gives them increased confidence to do creative and innovative things to meet loacl peoples needs.
193
Q

What are 4 reasons for charging in central government?

A
  1. Enable a rational way to allocate resources as it signals to consumers that public services have a real economic cost.
  2. Help prevent waste through badly targeted consumption
  3. Make comparisons with private sector easier.
  4. Promote competition, develop markets and generally promote financially sounf behaviour in the public sector.
194
Q

How should prices be set on central government charges?

A

To recover full cost on an accruals basis and including overheads, depreciation and the cost of capital.

195
Q

What are 4 examples of situations in which a charge should normally be made in central government?

A
  1. For statutory services where statute provides for a fee to be charged
  2. Inter-departmental services for non-statutory services provided by one government body to another.
  3. Intra-derpartmental services for non-statutory services provided to one part of a government body to another part of the same body.
  4. Shared services where several public service organisations join together to deliver services cheaper.
196
Q

What are the 4 advantages to charging in the public sector?

A
  1. Equity relating payment to benefit - noon-users of service are not required to subsidise users and charge can reflect scale of usage.eg Parking fee based on time.
  2. Economy - promotes competition and users are more likely to value and economise something they have paid for.
  3. Rationing/efficient use of resources
  4. Accountability - service quality is under more scrutiny and a relationship of provider and customer is established.
197
Q

What are the 3 disadvantages to charging in the public sector?

A
  1. Equity relating payment to ability to pay.
  2. Costs.
  3. Managing expectations of stakeholders.
198
Q

What are the 8 steps to be taken when developing a charging structure?

A
  1. Identify which charges should be reviewed
  2. assess constraints and understand the legislation
  3. Collect and analyse information
  4. Examine options for charges and concessions
  5. Consult on proposals
  6. Revisit options as appropriate
  7. Implement the new charge
  8. Monitor and review the impact
199
Q

When identifying which charges should be reviewed or considered when developing a charging system, what 3 things should be considered?

A
  1. Service user feedback
  2. Financial pressures and opportunities
  3. Alignment with corporate objectives
200
Q

When assessing the possible constraints and legislation when developing a charge, what 4 things should be considered?

A
  1. National guidance
  2. Users ability to pay
  3. Use of surpluses
  4. Target service user groups
201
Q

When collecting and analysing information when developing a charging system, what 5 things should be considered?

A
  1. Service uptake and user profile
  2. Customer satisfaction
  3. Other providers in the market
  4. Unit costs and cost recovery
  5. Impact of previous decisions
202
Q

When examining the options for charges and concessions, developing a charging system, what 5 things should be considered?

A
  1. Impact on service users including minority groups
  2. Forecasted demand and income
  3. Concessions and exemptioons
  4. Impact on other services and local businesses
  5. Consistency with corporate guidlines
203
Q

When developing a charging system, how can you consult on the proposals?

4 ways

A
  1. Workshops with service users
  2. Stakeholder surveys
  3. Sessions with decision makers
  4. Staff feedback
204
Q

When revisiting options as part of a charging system development what 3 things should be done?

A
  1. Adjust options as required
  2. Appraise all options
  3. Seek approval from decision makers
205
Q

When implementing a new charging system, what 3 things should be considered?

A
  1. Timing and phasing
  2. Communication of charges and the changes
  3. Monitoring arrangements and target setting
206
Q

What 3 factors should be reviewed when monitoring the impact of a new charging system?

A
  1. Whether the intended aims have been met
  2. The impact on uiptake and income
  3. Any unintended consequences
207
Q

WHat is the most effective way an organisation can manage stakeholders?

A

Ensure that they are engaged in any process of change and that they are properly consulted.

208
Q

What are the 4 steps of stakeholder mapping?

A
  1. Identify key groups of current and potential customers/service users.
  2. Analyse them by gaining an understanding of their perspectives and interests.
  3. Map their relationships to your objectives and to other stakeholders.
  4. Rank and prioritise their relative needs amd issues.
209
Q

What is an example of a negative effect of a charging system on the use of a service?

A

Fees introuduced for use of employment tribunals caused a 83% decline in the Sex-discrimination cases, suggesting that people were being priced out of the service.

210
Q

What are the 6 criteria for evaluating financing options?

A
  1. Financial cost
  2. Flexibility in use
  3. Flexibility in amount
  4. Administrative complexity of funding process
  5. Political attractivness of funding source
  6. Ability to use funding mechanism to meet wider objectives
211
Q

What are the 6 main roles of the IMF?

A
  1. Surveillance – This involves the monitoring of economic and financial developments and the provision of policy advice aimed at crisis prevention
  2. Lending - to countries with balance of payments difficulties to provide temporary financing and support policies aimed at correcting underlying problems and loans to low income countries to aid poverty reduction.
  3. Technical assistance and training in its areas of expertise
  4. Economic research and statistics to support these activities.
  5. Development of standard and codes of good practice to strengthen financial sectors.
  6. Fight against money laundering and terrorism
212
Q

What are the 5 types of loans for ODA according to the IMF?

A
  1. Aid loan excluding debt reorganisation
  2. Investment -related loan to developing countries
  3. Loan in a joint venture with recipient Loan to a national private investor
  4. Loan to a national private exporter.
  5. Loan to a national private investor

Strategic Public Finance (3 decks)

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