Whole of government accounts 2009-10 - Public Accounts Committee Contents

Conclusions and recommendations

1.  Treasury needs to make better use of the WGA to identify and address risks to public finances. The WGA can assist Treasury to fulfil its role as the UK's Ministry of Finance as it identifies key factors behind the government's financial position and the risks it needs to manage. However, we found that Treasury's understanding of some aspects of the WGA was poor. This shows why the exercise is so important. For instance the Treasury showed surprise at the estimated £10.9 billion in outstanding tax and it had no knowledge of recent trends in clinical negligence claims or whether plans were in place to reduce the estimated £15.7 billion cost to taxpayers of meeting these claims. The Treasury should use the WGA specifically to identify key risks to public funds and ensure bodies included in the WGA can demonstrate that they are addressing them effectively. As the WGA shows the net liability and deficit and how these have arisen, given their size, Treasury should produce a plan setting out how it intends to reduce these and a timetable for when they will be reduced to acceptable and affordable levels.

2.  The WGA has the potential to inform new decision-making and longer-term fiscal planning by providing the fuller and wider context for decisions involving new financial commitments. The accounts show that the total effect of individual decisions can be very significant. For example, at 31 March 2010 the combined value of individual commitments made through PFI deals was £131.5 billion and the present value of future spending on nuclear decommissioning was £56.7 billion. These insights are important when considering the affordability of investing in new infrastructure including nuclear energy, or in considering new PFI schemes. Treasury should require its Spending Teams to confirm that decisions taken by accounting officers on new projects and programmes are affordable over time and have been made with an understanding of the comprehensive impact of individual commitments on the aggregate financial position.

3.  The WGA needs to be unqualified if it is to be an authoritative resource for accountability and decision-making. The Comptroller and Auditor General qualified his opinion on the WGA 2009-10 for reasons that included the inconsistent application of generally accepted accounting practice. Treasury should show how and when it intends to address and resolve each of the reasons for the qualification in future accounts. It should also take a more active role in working with government bodies whose individual accounts have been qualified to resolve the causes of the qualification.

4.  Treasury's decision to exclude Network Rail, the government-owned banks and various other government controlled or owned organisations from the WGA is inconsistent with accounting standards and results in assets and liabilities being significantly understated. Treasury's explanation that it excluded these organisations to align the WGA with statistical measures of public finances prepared by the Office for National Statistics is not convincing. It could not articulate why Higher Education Institutions are excluded from the WGA when Further Education Colleges are included. The WGA is a set of financial statements that should follow generally accepted accounting practice, and Treasury did not even apply the definition used by the Office for National Statistics consistently. Treasury should prepare the WGA on a consistent basis and, in line with international financial reporting standards, include Network Rail, the publicly-owned banks and other organisations that are controlled by the government.

5.  It is difficult for users to interpret underlying trends in long term liabilities, such as pensions and nuclear decommissioning, because of inconsistency and, more importantly, volatility in the discount rates used. Discount rates are used to calculate the present value of future money. The WGA for 2009-10 used different discount rates to estimate the cost of public service pensions and nuclear decommissioning. Even worse, the discount rate used to estimate the pensions liability changed from 3.2% to 1.8% during 2009-10, increasing the net liability by £300 billion. Treasury should be transparent in explaining its reasoning for adopting a particular discount rate and should apply that rate consistently when estimating long term liabilities and identify ways to minimise volatility in this rate.

6.  The poor quality of data supplied by Academies and the absence of sanctions shows there is a gap in accountability. The information provided by Academies, which in 2009-10 accounted for £1.2 billion of government spending and held assets of £2.2 billion, was generally poor, and five Academies provided no information at all. This issue is likely to become more important with the creation of new Academies and other organisations that deliver local services such as Free Schools, Foundation Trusts and GP consortia. We have made recommendations in earlier reports about the importance of strong transparency and accountability when services are devolved. Treasury should ensure that local bodies, including those that are being newly established, are obliged to prepare transparent, timely and accurate information in a suitable format, and it should apply appropriate sanctions for non-compliance.

7.  The information contained in the WGA is out of date because Treasury took 20 months to prepare it, which is around three times as long as it takes other countries to prepare consolidated government accounts. Other countries have prepared consolidated accounts in seven months or less. The time taken to prepare the WGA for 2009-10 is in part due to the WGA having a wider scope than accounts produced by other countries but we also recognise that these are the first audited accounts prepared for the whole of government. The preparation of the WGA can nevertheless be accelerated, and Treasury should develop plans with interim milestones that clearly set out how it and the organisations covered in the WGA will deliver the next WGA faster.

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Prepared 7 February 2012