Chartered Institute of Public Finance and Accountancy (CIPFA) Strategic Public Finance and Governance Syllabus

Strategic Public Finance and Governance syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Strategic Public Finance and Governance in Chartered Institute of Public Finance and Accountancy (CIPFA), not a summary of it.

1. 1

   Public Sector Economics and Policy

   3 topics

   • Rationale for Government Intervention
     • Public goods and market failure
     • Externalities and merit goods
     • Redistribution and equity objectives
   • Fiscal Policy and the Public Finances
     • Government spending and taxation balance
     • Public sector borrowing and debt
     • Fiscal rules and sustainability
   • Spending Reviews and Funding Settlements
2. 2

   Strategic Financial Management

   4 topics

   • Capital Investment Appraisal
     • Net present value and internal rate of return
     • Discounting and the social discount rate
     • Cost-benefit analysis in the public sector
   • Sources and Management of Capital Finance
     • Prudential borrowing and the Prudential Code
     • Public Works Loan Board and capital markets
   • Treasury Management and Risk
     • The CIPFA Treasury Management Code
     • Investment strategy and liquidity
   • Financial Resilience and Sustainability Assessment
3. 3

   Corporate Governance and Risk Management

   3 topics

   • Governance Frameworks for Public Bodies
     • The CIPFA/SOLACE Framework for good governance
     • Role of the chief finance officer (Section 151)
     • Audit committees and scrutiny
   • Enterprise Risk Management
     • Risk identification and appetite
     • The three lines of defence model
   • Counter-Fraud and Financial Resilience
4. 4

   Strategy, Leadership and Change

   3 topics

   • Strategic Analysis and Planning
     • Environmental analysis tools
     • Stakeholder analysis and mapping
   • Leading Financial Transformation
   • Commercialisation and Alternative Delivery Models

Strategic Public Finance and Governance flashcards for Chartered Institute of Public Finance and Accountancy (CIPFA)

23 of 52 cards from the Strategic Public Finance and Governance deck — real questions with worked answers.

1. What are the four main economic rationales for government intervention in markets?

   (1) Public goods (non-rival, non-excludable) which markets under-provide; (2) Externalities (positive or negative spillovers); (3) Imperfect competition/monopoly; and (4) Imperfect information and equity/redistribution concerns.

2. Define a 'public good' and give its two defining characteristics.

   A good that the market fails to supply efficiently because it is non-rival (one person's consumption does not reduce availability to others) and non-excludable (people cannot be prevented from consuming it). Example: national defence.

3. What is a 'merit good' and why does government intervene to provide it?

   A good (e.g. education, healthcare) that is under-consumed because individuals undervalue its private and social benefits. Government intervenes to correct information failure and capture positive externalities.

4. What is the 'free-rider problem' in public finance?

   Because public goods are non-excludable, individuals can benefit without paying, so private markets cannot collect revenue and under-provide the good — justifying public (tax-funded) provision.

5. Distinguish a positive externality from a negative externality.

   A positive externality confers benefits on third parties not reflected in price (e.g. vaccination), leading to under-production; a negative externality imposes costs on third parties (e.g. pollution), leading to over-production. Both represent market failure.

6. What is fiscal policy and what are its two main instruments?

   Fiscal policy is the use of government spending and taxation to influence aggregate demand, growth, employment and inflation. Its two instruments are (1) government expenditure and (2) taxation/revenue.

7. Distinguish the cyclical from the structural element of a government's fiscal deficit.

   The cyclical deficit is the part driven by the economic cycle (recession lowers tax, raises spending) and self-corrects as growth recovers; the structural (cyclically-adjusted) deficit remains even at full employment and signals a need for policy correction.

8. Define the budget deficit and the national (public sector net) debt, and state their relationship.

   The deficit is the annual shortfall where spending exceeds revenue in a single year; national debt is the cumulative stock of past borrowing. Each year's deficit adds to the debt stock; a surplus reduces it.

9. What is the difference between automatic stabilisers and discretionary fiscal policy?

   Automatic stabilisers (progressive taxes, unemployment benefits) adjust without new decisions to dampen the cycle; discretionary fiscal policy requires deliberate government action to change spending or tax rates.

10. State the formula for the government budget balance.

    $$\text{Budget balance} = T - G$$ where $T$ is total tax revenue and $G$ is total government spending; a positive value is a surplus and a negative value is a deficit.

11. In UK public finance, what is the distinction between 'Departmental Expenditure Limits' (DEL) and 'Annually Managed Expenditure' (AME)?

    DEL is firm, multi-year planned spending that departments control and is set in Spending Reviews; AME is demand-led, volatile spending (e.g. welfare, debt interest) that cannot be capped in advance and is reviewed annually.

12. What is a UK Spending Review and what does it determine?

    A periodic HM Treasury exercise that sets multi-year (typically 3-year) departmental resource and capital expenditure limits (DELs), allocating the total spending envelope across government departments and priorities.

13. Distinguish 'resource' (revenue) expenditure from 'capital' expenditure in public budgeting.

    Resource expenditure is day-to-day running costs consumed within the year (salaries, supplies); capital expenditure creates or enhances long-life assets (buildings, infrastructure) delivering benefits over multiple years.

14. What is a local government funding settlement?

    The annual (or multi-year) statement from central government setting out the level of grant funding and locally-retained income (e.g. business rates, council tax referendum limits) available to local authorities for the coming year(s).

15. In capital investment appraisal, define Net Present Value (NPV) and its decision rule.

    NPV is the sum of a project's discounted future net cash flows minus initial outlay. Decision rule: accept if $\text{NPV} > 0$; among mutually exclusive projects choose the highest positive NPV.

16. State the Net Present Value formula.

    $$\text{NPV} = \sum_{t=0}^{n} \frac{C_t}{(1+r)^{t}}$$ where $C_t$ is the net cash flow in period $t$, $r$ is the discount rate, and $n$ is the project life.

17. What is the Internal Rate of Return (IRR) and its accept/reject rule?

    The IRR is the discount rate at which $\text{NPV} = 0$. Decision rule: accept a project if $\text{IRR}$ exceeds the required rate of return (cost of capital).

18. State the discount factor formula used in DCF appraisal.

    $$\text{Discount factor} = \frac{1}{(1+r)^{t}}$$ where $r$ is the discount rate and $t$ is the number of periods until the cash flow occurs.

19. In the UK Treasury Green Book, what discount rate is recommended and what does it represent?

    A Social Time Preference Rate (STPR) of $3.5\%$ in real terms for the first 30 years, representing society's preference for benefits now over later (declining for longer horizons). It is used to discount social costs and benefits.

20. What is the payback period method and its key limitation?

    Payback is the time taken for cumulative cash inflows to recover the initial investment. Its key limitation is that it ignores the time value of money and all cash flows after the payback point.

21. What are the five cases of the UK Treasury 'Five Case Model' for business cases?

    Strategic case, Economic case, Commercial case, Financial case, and Management case — assessing strategic fit, value for money, viability of procurement, affordability, and deliverability respectively.

22. Define the Accounting (Average) Rate of Return and its formula.

    ARR expresses average annual accounting profit as a percentage of investment: $$\text{ARR} = \frac{\text{Average annual profit}}{\text{Average (or initial) investment}} \times 100\%$$ Accept if it exceeds a target return.

23. List the principal sources of capital finance available to UK public bodies.

    Borrowing (e.g. PWLB loans, bond issuance), capital grants from government, capital receipts from asset sales, revenue contributions/reserves, leasing, and partnerships such as joint ventures or developer contributions (e.g. Section 106/CIL).

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