The future’s bright
The future’s bright – the future’s Orange.
Sadly neither of these applies to the Library’s financial future. More like “dark and murky with a distinct possibility of going into the red”. Now, I will admit that that’s not the most punchy advertising slogan I’ve ever heard, but then again I’m not employed to market mobile telephone networks. Probably just as well.
So, why all the gloom and doom? Lets start off with the budget. I don’t know for sure, and this is just speculation on my part, but I wouldn’t be surprised if the figures that we’ve been given as indication for grants 2012/13 and onwards could change for the worse. We’re already struggling with the cuts that have been imposed. Our capital grant is now less than it was 20 years ago – so any more cuts are going to be difficult. This would be bad news on its own, but on top of this we are in a financial straightjacket: there are the usual accounting rules we must comply with which are sometimes a bit of a pain, but worse than this are the special rules regarding government accounting. These make the position a whole lot more difficult.
The accounting rules are perhaps the easiest to deal with. There are strict rules on what can be counted as capital expenditure – you have to be able to prove it creates a capital asset to charge it to capital. This rule does have some merit: it prevents companies from putting running costs expenditure on their balance sheets in order to artificially inflate profits. Accounting rules should help to prevent accounting scandals, and there’s a long list of these: starting with Polly Peck (if you’re old enough to remember), on to Robert Maxwell and, more recently, Enron, to name but three.
The rules around government accounting are more difficult to deal with, mainly because some of them make no sense at all.
Let’s start off with one that, at least, has some logic: capital and revenue grants. Some of our government grant income is for capital projects and some for running costs. That’s fair enough. However, there is absolutely no chance that the Assembly will agree to what is known as “virement” – changing some of the capital grant to finance running costs or vice versa. There is no flexibility. Also, we can’t move money between financial years; so if we don’t spend the money, we lose it.
On top of all this, government accounting rules also restricts us to 2% in cash in the bank at the year-end. As a measure of financial performance, just looking at the cash position alone is what we accountants would call “nuts”. It’s like going to the cash point on pay day and deciding that you must be loaded on the basis of what’s in your account on that day, and completely ignoring the fact you’ve got to pay the rent and buy food next week.
The lack of ability to transfer between funding types and years, and the race to get under the 2% limit are the main reasons behind the mad rush at year-end to spend money. At the same time staff salaries are being frozen; so with one hand we are spending money like its going out of fashion, but on the other we can’t afford to increase pay. That’s a hard one to explain.
A financial system like this would not look out of place in countries like Zimbabwe. In fact, it is probably more or less the same financial system as Rhodesia was once part of the British Empire. Nobody seems to have got around to changing some of the more archaic aspects of the Government’s accounting rules.
Come to think of it, the UK also has high inflation (granted, not quite in the same league as Zimbabwe’s hyperinflation). Perhaps we’re not that far removed?
Our saviour in the current financial climate has been capital grants from the Assembly (for digitisation – SCIF) and, hopefully, another big archive grant later this year. However, one-off capital financing is like surviving on a junk-food diet: it’s very tasty when you first get it, but it’s soon gone and before too long you need some more. It’s an unhealthy lifestyle for anyone, and also for any organisation. It’s no substitute for a good healthy recurrent grant, but we have to be grateful for what we get – it’s better than no grant at all; the Assembly deserves some credit for trying to help. However, unless the capital grants become recurrent, when the funding stops so does the project and then we’ll have to shed staff. There is no way the revenue budget could sustain these extra costs; it will end up in the red. And therein lies the financial heart-attack from the junk-food diet.
Orange ditched “the future’s bright” a couple of years ago and I’m not sure what their current strapline is. In fact, I don’t think they use one now.
“Government accounting – it’s bonkers”. Now that sounds like a good slogan.
I wonder if Orange would hire me?