The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
“This document provides the most comprehensive picture we have of all the assets and liabilities in the public sector. And the Whole of Government Accounts for 2011-12, published in July 2013, is the best yet, presenting the combined financial activities of some 3,000 organisations. This document provides vital data on which Government needs to act. We welcome the Government’s focus on some of the key issues identified, such as the £19.4 billion liability for clinical negligence claims.
“But it is frustrating to see other issues seemingly ignored in long-term policy making and spending decisions. For instance, taxpayer losses due to fraud and error are worryingly high. It is staggering that, in one year, the public sector was defrauded of over £20 billion and the tax gap rose to £35 billion. And the financial liabilities for dealing with nuclear waste keep growing with timetables continually slipping.”
“There is room for improvement in the document itself and how it is used.
“Users find it hard to understand, for example, why the Government debt and deficit highlighted in the WGA differ from those reported in the ONS’s National Accounts. According to the former document, compiled on the basis of well-understood accounting standards, the UK’s in-year deficit for 2011-12 was £185 billion. The National Accounts used by the Chancellor put the figure at £90 billion.
“Also, by changing definitions in its commentary published alongside the WGA, the Treasury makes it difficult to track changes over time. So, for instance, the Treasury’s introduction in the commentary of a new concept of so-called ‘direct’ expenditure leaves out key costs such as the interest paid on the National Debt.
“The credibility of the WGA is still being undermined by the number of issues leading the C&AG to qualify the accounts. The publicly owned and controlled bodies – such as Network Rail and the taxpayer owned banks – are still being excluded, in defiance of normal accounting rules.
“The usefulness of the WGA is also being limited by the length of time it takes to produce the document and by poor quality data from some of the bodies. The accounts have again been qualified over the completeness, timeliness and accuracy of the information supplied for schools and academies. This issue is likely to become more significant as the number of academies rises rapidly.”
Margaret Hodge was speaking as the Committee published its 32nd Report of this Session which, on the basis of evidence from the Treasury, examined the Whole of Government Accounts 2011-12.
The Treasury published the WGA for 2011-12 in July 2013. It presents the combined financial activities of some 3,000 organisations across the public sector (an increase from the 1,500 covered last year) to produce the most comprehensive accounting picture of the public sector across the UK currently available. The WGA 2011-12 reports net expenditure for the year (the current deficit) at some £185 billion compared to £94 billion the previous year (£196 billion before taking into account one-off adjustments that occurred in 2010-11). It also reports net liabilities—the difference between the government’s assets and liabilities—of £1.34 trillion compared to £1.19 trillion last year. These figures are at variance with those used by the Chancellor in the National Accounts.
Despite some progress the public sector is not yet making sufficient use of the information in the WGA. The Office for Budget Responsibility uses figures reported in the WGA to inform its Fiscal Sustainability Report and the accounts have highlighted issues, such as the increasing costs of clinical negligence and fraud, error and debt, which departments are seeking to address. But the WGA could be used much more by many more decision makers in Government to inform long term policy making and spending decisions.
Recommendation: The Treasury should set out how it will ensure that the Government makes much better use of the WGA to inform decisions, particularly in areas that involve long term liabilities, such as the costs of nuclear decommissioning, PFI and pensions.
The accounts need to be simpler to understand. The WGA provides a sound snapshot of public finances based on well understood accounting standards. But the figures for net expenditure and net liabilities in the WGA differ significantly from those published by the Office for National Statistics (ONS) in the National Accounts. For example, net expenditure (the current deficit) is reported in the WGA as £185 billion, but in the National Accounts the equivalent figure is £90 billion. While the WGA is more complete in respect of assets and liabilities than the National Accounts, it is still not clear to users why the deficits produced by the two methods differ by £95 billion. We are also concerned at the new presentation within the WGA of so-called ‘direct’ expenditure, which the Treasury classifies as expenditure within the direct control of bodies such as benefit payments, as this measure excludes some obvious costs, for example, financing costs and pension scheme costs which are also directly managed by government. This new classification appears to be making actual expenditure more opaque and less than transparent.
Recommendation: The Treasury should make the differences between the National Accounts and the WGA clearer and provide a more transparent and complete picture in presenting directly controlled expenditure.
Taxpayer losses due to fraud and error are worryingly high. Some £13.2 billion was written off in the accounts for 2011-12 as a result of losses from fraud, error, negligence claims and debt management across government. The National Fraud Authority estimates public sector fraud to be £20.6 billion and HMRC estimates that the annual tax gap has risen to £35 billion. The Treasury agrees that the level of these losses is too high, but prayed in aid the action that the Government has taken, particularly the fraud task force, the increase in tax credit checks and the Cabinet Office’s focus on fraud and error in procurement that should help to mitigate the government’s exposure to losses.
Recommendations: The Treasury should develop, publish and implement an action plan setting out a co-ordinated strategy to tackle fraud and error and report cross-government figures within the WGA which can be used to show the impact of the government’s counter-loss activities. This work should be clearly prioritised across Government because of the impact on the deficit.
The credibility of the WGA continues to be undermined by the number of issues that have again led the Comptroller and Auditor General to qualify his audit opinion on the accounts. The WGA has been qualified for the second consecutive year on six grounds. We note that there has been some improvement in the status of some of these qualifications. For example, the extent of error relating to transactions between bodies included within the WGA has fallen. However, we remain concerned about the number of public sector bodies that are still excluded from the WGA such as Network Rail and the government owned banks. We welcome the fact that ONS is reviewing its treatment of Network Rail in the National Accounts and that it will report the outcome before next year’s WGA. But we remain firmly of the view that the Treasury should follow normal accounting rules, rather than the National Accounts’ classifications, when compiling the WGA.
Recommendation: The Treasury should reconsider its continued exclusion of publicly owned and controlled bodies.
Poor quality data still affects the usefulness of the WGA. We are concerned that the accounts have again been qualified because of issues concerning the completeness, timeliness and accuracy of the data supplied for schools and academies. This issue is likely to become more significant as the number of academies is increasing rapidly, from 1,665 academies at 31 March 2012 to 3,128 at 1 July 2013. There is also evidence that a substantial number of other schools have been omitted from local authority accounts resulting in them also being excluded from the WGA.
Recommendation: The Treasury must, with the Department for Education, take steps to ensure bodies submit complete and accurate data for inclusion in the accounts and set out how they intend to ensure that all relevant schools are included in the WGA.
Greater transparency of ‘off-payroll’ arrangements is needed, particularly in the health and local government sector. Treasury guidance issued in 2012 stated that engaging staff ‘off-payroll’ (that is staff not paying tax through PAYE) should be kept to a minimum, and where it does occur, it should be reported to Parliament as part of departments’ 2012-13 annual reports and accounts. Departments were required to disclose how many staff were ‘off-payroll’ and whether or not the Department had “sought assurance as to their tax obligations”. Some 500 of the 985 staff reported as ‘off-payroll’ on 31 January 2012 were still working for departments and their agencies at 31 March 2013. There have also been over 700 new staff engaged off-payroll between August 2012 and March 2013. We are also concerned that there is not the same level of transparency in this area in the health and local government sectors.
Recommendation: The Treasury should continue to strengthen its guidance and work with departments to ensure full disclosure of ‘off-payroll’ arrangements and impose appropriate sanctions where there is evidence of tax avoidance. More needs to be done to establish how widespread the practice is in the health and local authority sectors.