The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
"We welcome the publication of the first audited Whole of Government Accounts (WGA) as a major step forward in improving transparency and accountability. It attempts to show in a single document what the government owes, owns, spends and receives.
The 2009-10 WGA reveals some staggering numbers and shows that the total effect of individual financial decisions can be very significant.
The cost to the taxpayer of settling outstanding claims for clinical negligence was estimated at £15.7 billion, while the amount of unpaid tax written off by the government was as high as £10.9 billion.
The accumulated value of future commitments under PFI schemes was £131.5 billion – four times the value of the assets secured through the deals. The provision for nuclear decommissioning was £56.7 billion and increasing.
This is the first time either Treasury officials, or ministers, or MPs and the public have been able to look at the total cost of policies over time. The challenge is to improve the accuracy and extend the coverage so that there is proper transparency over the Government’s spending commitments over time – not just in the Spending Review period. Government must then use the information to make better decisions and we will be able to judge them more effectively on value for money.
It is important to realize that the WGA is out of date, having taken some 20 months to be prepared. Countries such as France, the USA and Australia can produce similar accounts in less than 9 months, so this must get better.
It also currently falls short of giving a true and fair view of the UK’s financial position. The Treasury has departed from accounting standards by leaving out of the accounts such bodies as Network Rail and the publically owned banks. This has led to the accounts being qualified by the Comptroller & Auditor General. We want the Government to provide the necessary information so that these accounts are comprehensive and credible. They will undoubtedly be very valuable."
Margaret Hodge was speaking as the Committee published its 67th Report of this Session which, on the basis of evidence from HM Treasury, examined the information provided in the accounts, how Treasury intends to use the WGA to improve the management of public finances, and its plans for strengthening the quality of future WGAs.
In November 2011, HM Treasury published the first audited Whole of Government Accounts (WGA), covering the year 1 April 2009 to 31 March 2010. We welcome the WGA 2009-10 as a major step forward in improving transparency and accountability. The WGA reveals, for example, that at 31 March 2010 the government’s public service pensions liability was more than £1,132 billion and the present value of its future commitments under PFI schemes was £131.5 billion. The WGA also shows that the government wrote off £10.9 billion in unpaid taxes and expected to have to pay £15.7 billion for outstanding clinical negligence claims.
We were surprised to find that Treasury did not have a grip on trends in some key areas of risk or plans for managing them. For example, clinical negligence claims at 31 March 2010 accounted for 15% of provisions for future government spending. Treasury now has the potential to strengthen the management of public finances if it uses the WGA to identify influences on the government’s financial position, including where it is most exposed, and uses these to better anticipate the risks that it must address. The Treasury must use this opportunity better to manage these risks.
The WGA will only serve its purpose– telling us what the government owns, owes, spends and receives – if it is timely and robust. The figures in the first audited WGA are too dated because Treasury took 20 months to prepare and publish the report. Treasury must address the issues that led the Comptroller and Auditor General to qualify his audit opinion on the WGA 2009-10. A key issue is Treasury’s decision to deviate from accounting standards, by omitting Network Rail, the publicly owned banks, and various other government controlled or owned bodies from the WGA. The accounts as presented by Treasury are therefore incomplete and these are important omissions. Treasury’s explanation that it excluded them to align the scope of the WGA with the statistical measures of public finances prepared by the Office for National Statistics is not convincing because the WGA is a financial statement that ought to be prepared in line with generally accepted accounting practice.
The WGA includes estimates of costs several decades into the future, such as public service pensions (£1,132 billion) and nuclear decommissioning (£56.7 billion). Interpreting the movement, year on year, for these liabilities is complicated by the instability of the discount rates used to calculate the present value of future money. For example, in 2009-10 the change of discount rate from 3.2% to 1.8% was largely responsible for a £300 billion increase in the pensions liability. The discount rate for valuing pension liabilities subsequently changed again for 2010-11, to 2.9%, which will result in continuing instability in the estimate of the pensions liabilities. The rationale for settling on a particular discount rate should be transparent so that its validity can be checked.
We have previously highlighted the need for stronger accountability systems to secure effective responsibility for cost and value for money at local levels. The financial information that Treasury received from Academies, which accounted for £1.2 billion of government spending and £2.2 billion of assets during 2009-10, was of poor quality as it included unaudited data and some Academies provided no information at all. This shows that there is a gap in accountability. This issue is likely to grow in importance as new Academies are created, alongside Free Schools, Foundation Trusts and GP consortia.
If the WGA is to provide a solid foundation for improving the management of public money, some key principles must be followed.
In considering the recommendations made in this report, the following key principles should be considered:
- As the UK's Ministry of Finance, the Treasury is responsible for managing public sector finances and for managing financial risk.
- Timely, reliable and complete information on what the government owes, owns, spends and receives provides the foundation for managing public finances.
- The WGA will help the Treasury to drive change through its management of the public sector’s balance sheet.
- Clear performance measures provide a catalyst for identifying and managing risk.
- Spending Teams within Treasury are responsible for ensuring that Accounting Officers do not commit to major new programmes or projects that could put the government’s overall financial position at risk, both in the short term and over time