Public services around the world are under pressure. Despite rising public expenditure, governments face declining outcomes, overstretched workforces, and growing public frustration. A recent report from the Tony Blair Institute for Global Change, titled Public Service Reform in the Age of AI, argues that the underlying issue is not funding alone, but an operating model for public services that has not kept pace with changing demands or capabilities.
The report sets out a vision for how artificial intelligence (AI) and modern digital infrastructure could support a different model of government. One where services are always available, more responsive to individual needs, focused on prevention, and capable of learning in real time. Much of the analysis focuses on service delivery, but the implications extend deeper into the machinery of government. Public financial management sits at the centre of this shift.
Governments cannot deliver AI-era public services while relying on financial systems designed for a different era.
The hidden constraint: legacy PFM models
Traditional public financial management systems were built to prioritize control, compliance, and periodic reporting. They are effective at answering whether funds were spent as authorised. They are far less effective at supporting decisions about timing, risk, or impact.
As governments move towards more dynamic, data-driven service models, this mismatch becomes more visible. Financial systems that operate on annual cycles and retrospective controls struggle to support services that evolve continuously and respond to emerging needs.
AI-enabled public services depend on financial systems that integrate across functions, operate in near real time, and generate insight rather than simply recording transactions.
Always-on services require always-on financial controls
One of the report’s central arguments is that AI allows governments to expand capacity without expanding labour. The same logic applies to financial management. Annual budgets, batch processing, and manual controls cannot keep pace with services that operate continuously.
Modern PFM systems need to support continuous visibility over budgets, commitments, and cash positions. They also need to embed automated, risk-based controls that scale with activity rather than staffing levels. This approach strengthens fiscal discipline by relying on intelligence and transparency instead of manual intervention after the fact.
When financial oversight operates continuously, governments gain earlier insight into emerging pressures and greater confidence in how resources are being used.
Prevention depends on predictive fiscal insight
Preventative public services rely on early signals. Financial data is often one of the earliest indicators of stress or inefficiency, yet it is rarely used in this way.
Integrated financial systems can help governments mitigate risk and build resilience. They can identify delivery bottlenecks, rising arrears, or unsustainable spending patterns before they escalate into crises. This allows leaders to intervene earlier, reallocate resources more effectively, and reduce reliance on costly emergency measures.
In this context, public financial management supports prevention by informing decisions in time to change outcomes, rather than documenting problems after they have already materialized.
Empowering the front line without losing control
The report highlights the importance of equipping public servants with better data and tools. Financial systems play a critical role in enabling this shift. Delegating authority closer to delivery only works when leaders retain real-time visibility and confidence in financial controls.
Modern PFM supports delegated decision-making by combining local flexibility with continuous oversight. Spending authority can be distributed while maintaining transparency, traceability, and accountability. This reduces the need for heavy ex-post auditing and allows assurance to be built into day-to-day operations.
When financial systems are designed this way, trust is reinforced through visibility rather than process.
Implications for Governments Worldwide
Although the report draws heavily on the UK experience, its conclusions apply far more broadly. Governments across regions face similar structural pressures, including rising demand, constrained workforces, and limited fiscal space. In many emerging and small states, these challenges are even more pronounced.
The lesson is widely applicable. AI-enabled public services require financial systems that can support faster decision-making, earlier intervention, and continuous learning.
Public financial management underpins this shift. It shapes what governments can deliver, how quickly they can adapt, and how confidently they can act. In the age of AI, PFM enables governments to operate with greater foresight, discipline, and resilience.
You can read more on PFM and AI in our minister briefing, or in our blog post, Unlock Public Finance Potential Through AI.