COMMONS

Whole of Government accounts 2012-13 report published

07 January 2015

We welcome the publication of the Whole of Government Accounts as an essential tool for holding Government to account for its management of the public finances.

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

"We welcome the publication of the Whole of Government Accounts as an essential tool for holding Government to account for its management of the public finances. However, the Accounts do not currently offer Parliament real visibility over the delivery and impact of the Government’s deficit reduction plans.

The Government has made progress in reducing the deficit, but the challenges in meeting current and future targets for eliminating the deficit look very challenging.

The Treasury plans that, by the end of the current Parliament, some £126 billion of consolidation measures will be achieved from a combination of spending cuts – some £100 billion – and increased tax revenues – around £26 billion.

However, tax revenues have not been increasing as expected and, although the spending cuts are being delivered, officials are less clear where the savings have been made.

The Treasury plans to save some £20 billion from welfare savings, £20 billion from reducing the public sector workforce, £6 billion from pay restraint, and £5 billion from increasing pension contributions from public sector workers over the spending review period. But the make-up of the remaining savings is not clear.

The challenge in delivering further fiscal consolidation measures during the next Parliament should not be underestimated.

Currently some £250 billion of over £700 billion public expenditure (on state pensions, health, schools and overseas aid) is protected from spending cuts and tax receipts continue to be well below forecasts. This leaves the challenge of identifying and delivering further expenditure cuts as very testing.

Long-term fiscal consolidation will also not be achieved without better management of the risks and uncertainties in the public sector balance sheet, for instance in the repayment of student debts or the costs of nuclear decommissioning.

The Treasury has not demonstrated sufficient oversight in ensuring that all parts of the public sector comply with the Government’s expectations on pay restraint.

The Treasury sets the framework for public sector pay but has been slow to exert its direct control over decisions taken by the wider public sector when setting remuneration packages.

The Treasury has also been slow in identifying and addressing seemingly excessive pay awards for some roles in the education sector, such as University Vice Chancellors and ‘Super-Heads’, and has only recently started to collate information in areas such as the Academy sector.

Off payroll arrangements across central government still occur too often and have yet to be tackled throughout the wider public sector. In 2013-14, there were some 2,214 new ‘off-payroll’ arrangements within central government and, in 27% of cases, departments did not insert clauses into contracts allowing them to seek assurances on individuals’ tax obligations."

 Margaret Hodge was speaking as the Committee published its 26th Report of this Session which – on the basis of evidence from Sir Nicholas Macpherson, Permanent Secretary to the Treasury; Sharon White, WGA Accounting Officer and Second Permanent Secretary to the Treasury; Julian Kelly, Director, General Public Spending and Finance, Treasury; and Ross Campbell, Deputy Director, Government Financial Reporting, Treasury – examined the Whole of Government Accounts 2012-2013.

We welcome the continuing progress HM Treasury is making in producing the Whole of Government Accounts (WGA). The 2012-13 WGA was published five weeks earlier than last year and the Treasury now has plans in place to produce the accounts even earlier in future years. The Treasury also aims to allow the Comptroller and Auditor General to remove most of his qualifications on the audit opinion. This is the fourth WGA to be published and it remains the most comprehensive picture of the Government’s income, expenditures, assets and liabilities that is available.

WGA essential for accountability

Parliament lacks real visibility over the Government’s delivery of its deficit reduction measures under the current Spending Review. The Government has currently delivered only half of its planned measures to balance public sector income and expenditure (fiscal consolidation measures). The experience in the delivery of consolidation measures to date, where for example the planned increases in tax revenues have not been realised, also show that the Government will face a significant challenge in delivering the next phase of the consolidation. In assessing the Government’s performance in its management of public finances, the WGA is now an essential tool in supporting Parliamentary accountability.

The Treasury has been slow in ensuring  that all parts of the public sector comply with the Government’s expectations on pay restraint, particularly in the setting the pay of senior staff. We welcome the steps the Treasury has taken to ensure that “off payroll” arrangements within central government are made more transparent and that the Treasury is sanctioning government bodies when they fail to comply with the guidance. However, the Treasury now needs to do more in tackling “off payroll” arrangements within the wider public sector and making these arrangements equally transparent as those within central government.

Conclusions and Recommendations

Parliament lacks visibility over the impact of the Government’s fiscal consolidation measures. The Treasury plans that, by the end of the current Parliament, some £126 billion of consolidation measures will be achieved from a combination of spending cuts (some £100 billion) and increased tax revenues (around £26 billion). Officials explained that tax revenues were not increasing as expected and, although the spending cuts were being delivered, they were less clear where the savings had been made. The Treasury told us that the planned savings over the spending review period included some £20 billion from welfare savings, £20 billion from reducing the public sector workforce, £6 billion from pay restraint, and £5 billion from increasing pension contributions from public sector workers. The make-up of the remaining savings was not clear.

Recommendation: The WGA is a key means by which Parliament holds the Government to account for its management of public finances, including its progress in delivering fiscal consolidation measures. The Performance Report part of the WGA is now the most appropriate place to set out the impact of the Government’s fiscal consolidation measures on government finances so that trends in performance can be assessed.

The Government has made progress in reducing the deficit but the challenges in meeting current and future targets for eliminating the deficit look very challenging. The Treasury estimates that it will have reduced the deficit in the public finances from 11% of Gross Domestic Product in 2010 to 5.5% by the end of the current Parliament. The challenge in delivering further fiscal consolidation measures during the next Parliament should not be underestimated. Under present policies some £250 billion out of over £700 billion public expenditure is protected from spending cuts and tax receipts continue to be well below forecasts. This leaves the challenge of identifying and delivering further expenditure cuts as very testing.

As well as the uncertainty around the levels of tax revenues, the challenge of delivering further savings in public sector spending is likely to be greater than that experienced so far given the large areas of expenditure that are protected. The Government also has existing commitments to meet long term obligations such as the costs of nuclear decommissioning, where costs continue to increase at a massive rate, and the ability to recover student loans where estimates of write-offs also continue to grow fast. Long-term fiscal consolidation will not be achieved without better management of the risks and uncertainties in the public sector balance sheet. The Treasury has acknowledged that its Spending Teams need to better understand the impact of current spending decisions on future generations.

Recommendations

  • The Treasury should use the WGA to set out the risks and uncertainties it faces in meeting fiscal consolidation and how these are being managed.
  • The WGA should also set out how Spending Teams have used WGA information to influence the next spending round and beyond.

The Treasury does not currently assess the level of fraud and error across the whole of government. They know that in 2013-14 fraud and error on tax credits amounted to £2 billion and fraud and error on benefits and pensions amounted to £3.3 billion.

Recommendation: As we recommended last year, the Treasury should:

  • collect information across the whole of Government so that it can disclose the totality of monies lost through fraud and error.
  • develop a consistent and coherent policy across Government for tackling fraud and error with a view to reducing the losses concerned.

The WGA does not provide Parliament with information on national or regional spending. The WGA currently provides an analysis of expenditure between central government, local government and public corporations. We believe that an analysis of national and regional spending would demonstrate to Parliament the effective allocation and use of resources on a national and regional basis. We welcome the Treasury’s agreement to include this disclosure in future.

Recommendation: The Treasury should develop and implement an action plan and timetable for the future disclosure of expenditure on a national and regional basis.

The Treasury has not demonstrated sufficient oversight in ensuring that all parts of the public sector comply with the Government’s expectations on pay restraint. Pay costs form a significant part of public sector spending and a lack of control over pay could negate savings made elsewhere. The Treasury sets the framework for public sector pay but has been slow to exert its direct control over decisions taken by the wider public sector when setting remuneration packages. For example, although the Treasury took steps to eliminate automatic annual increments as part of its own pay awards system, it has yet to see this achieved throughout the rest of the public sector. The Treasury has also been slow in identifying and addressing seemingly excessive pay awards for some roles in the education sector, such as University Vice Chancellors and ‘Super-Heads’ and has only recently started to collate information in areas such as the Academy sector. Given this track record, we are sceptical as to whether government are taking this matter seriously and are concerned that messages around the need for pay restraint for the public sector are undermined by remuneration packages offered to more senior public servants.

Recommendations: The Treasury should:

  • set clear expectations of appropriate senior level pay, and pay restraint more generally, for all publically funded bodies to apply;
  • publish, a clear picture of pay trends across the whole of the public sector within the WGA; and
  • enhance accountability for the decisions made by public bodies by expanding the scope of the WGA Remuneration Report to include senior banded salary details for other WGA sectors as well as those for the civil service.

Off payroll arrangements across central government still occur too often and have yet to be tackled throughout the wider public sector. We have concluded previously that better procedures were needed to manage ‘off-payroll’ arrangements, where individuals organise their pay to be remitted to a limited company to avoid income tax, across the public sector. Guidance from the Treasury and Cabinet Office now requires these arrangements to be reported in central government accounts and we welcome this improved transparency. However, we are concerned that there are no similar arrangements in the local authority and public corporations sectors. We also welcome the Treasury’s stance in sanctioning central government bodies that have failed to follow guidance, but are disappointed where Treasury oversight has failed to ensure some departments are addressing problems effectively. For example, in 2013-14, there were some 2,214 new ‘off-payroll’ arrangements within central government and, in 27% of cases, departments did not insert clauses into contracts allowing them to seek assurances on individuals’ tax obligations.

Recommendations: The Treasury should:

  • continue to work with the Local Government Association to set clear expectations on the use of such arrangements across the local authority sector;
  • develop appropriate frameworks for disclosing off-payroll arrangements within local government and public corporations; and
  • in light of applying the existing guidance over the past two years within central government, consider lessons learnt and where this guidance can be strengthened so that all departments are consistent in their application of the guidance.

Further information

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