PAC publish Whole of Government Accounts 2010-11 Report

“The Whole of Government Accounts sets out the combined financial position of some 1,500 public sector bodies, but at the moment it is more of an elaborate accounting exercise then a meaningful tool for helping government manage the public finances more effectively

“The WGA should be used to identify the nation’s key financial risks, such as the spiralling cost of clinical negligence, £17.5 billion in the accounts, and set out how they are being managed.

“It should also be used to help government make better spending choices by highlighting the financial consequences of past decisions, such as the £144.6 billion currently owed under PFI schemes and the estimated £60.9 billion cost of nuclear decommissioning.

“And it should allow us to track the government’s performance in key areas such as tackling fraud and error, which costs the taxpayer some £21.2 billion a year.

“The publication of the WGA is in part about improving transparency, but the accounts in their current form are impenetrable to most ordinary people. They should be clearer and easier to understand.

“We are also concerned that the WGA still fails to provide a true and complete picture of the nation’s financial position. The 2010-11 accounts include the Bank of England for the first time, but the Treasury could not provide a convincing explanation for the on-going exclusion of organisations such as the Royal Bank of Scotland, Lloyds Banking Group and Network Rail.

“It took the Treasury 19 months to publish the WGA which means that the information it contains is out of date.  The accounts have also been qualified for the second year running. This is not good enough.

“Treasury needs a clear plan for improving the timeliness, quality and completeness of the WGA, and how it will use this document to support the management of the nation’s finances.

“It should make sure that departments are aware of what the headline figures mean for them and the accounts should be regularly considered by all departmental management boards.

“Some public bodies, such as academies, failed to provide complete and accurate accounts. The Treasury will need to ensure that effective sanctions and incentives are in place so that all bodies submit data that is complete, timely and auditable.”

Margaret Hodge was speaking as the Committee published its 37th Report of this Session which, on the basis of evidence from HM Treasury, examined the Whole of Government Accounts 2010-11.

The Whole of Government Accounts (WGA) combines the financial position of some 1,500 public sector bodies to provide the most complete picture available of government’s total finances. The Treasury published the audited WGA for the financial year 2010-11 in October 2012. This is the second WGA and the first to have comparative data from the previous year.

The WGA shows that the annual deficit was £94.4 billion in 2010-11, a reduction of £68.3 billion from the £162.7 billion deficit in 2009-10. However, the 2010-11 accounts include a gain of £126 billion from an assumed reduction in the public sector pension liability as a result of the Government’s decision to change the measure of inflation used to uprate payments to pensioners from the Retail Price Index to the Consumer Price Index with effect from 1 April 2011. Without this change, the deficit for 2010-11 would have been £220.4 billion.

The WGA also shows that at the end of 2010-11 the government had net liabilities—the difference between the government’s assets and liabilities—of £1,193.4 billion, which is similar to the figure of £1,212 billion at the end of the previous year. The total future obligations for the 706 PFI contracts contained in the accounts are estimated to be £144.6 billion. The WGA also contains provisions of £17.5 billion for claims for clinical negligence, £60.9 billion for the estimated cost of nuclear decommissioning, and £18.7 billion for irrecoverable debts.

The Treasury acknowledges the potential of the WGA to help it manage the public finances more effectively. But the Treasury does not have a clear plan to realise that potential or improve the quality and timeliness of the WGA to improve its usefulness. For example, the accounts could be used to identify and manage key financial risks and pressures, and report on the effectiveness of government policies aimed at reducing the UK’s annual deficit and government debt. Key issues identified in the accounts on which the Government should act include the spiralling cost of clinical negligence claims and the estimated costs for nuclear decommissioning. The Government also needs to perform better at collecting all monies due to all agencies and reducing the estimated £21.2 billion a year lost in the public sector through fraud and error.

The accounts should also be regularly considered by all departmental management boards. Where cross-departmental issues are identified, such as the increasing claims for clinical negligence, the Treasury should ensure action is taken across Government. The WGA could also be used to highlight the burden of past decisions on the public purse such as the on-going cost of nuclear decommissioning. More needs to be done to make the accounts easier to understand. The WGA would also be more useful if it contained sufficient information to enable a detailed analysis by region or by category of spend.

It took the Treasury 19 months to publish the WGA. This means that the information it contains is out of date. This, coupled with the issues that led the Comptroller and Auditor General to qualify his audit opinion on the accounts for a second year, undermines the WGA’s usefulness. Part of the Treasury’s role, as Ministry of Finance, is to ensure that the relevant public sector bodies, including government departments, are on track to resolve these qualification issues as quickly as possible. The quality of the data provided by some public sector bodies was an issue, with some academies failing to provide any data and others providing un-audited information. The Treasury does not have effective sanctions or incentives in place to encourage bodies to submit better quality data.

It is also important that the accounts give a complete picture. The 2010-11 WGA includes the Bank of England for the first time, but it still does not include all bodies owned and controlled by government, leading to an accountability gap. The Treasury could not provide a convincing explanation for the on-going exclusion of organisations such as the Royal Bank of Scotland, Lloyds Banking Group and Network Rail from the WGA which, under normal accounting rules, should be included.