Whole of Government Accounts 2012-13 - Public Accounts Committee Contents

1  Managing the public finances

1. On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Treasury on the 2012-13 Whole of Government Accounts (WGA) and managing payroll costs in the public sector.[1] The Treasury published the 2012-13 WGA in June 2014 some five weeks earlier than the 2011-12 WGA which the Treasury published in July 2013. The WGA reports net expenditure (total expenditure less income) for the year of some £179 billion compared to £185 billion the previous year. Net liabilities (the difference between the government's assets and liabilities) have risen from £1.3 trillion to £1.6 trillion by 31 March 2013.[2]

2. WGAs have now been produced for four consecutive years and trends are beginning to be evident over public finances. The quality of the WGA continues to improve year on year and we recognise that the Treasury's focus in preparing these accounts has been on ensuring that the quality of data feeding into the WGA is robust and on improving the timeliness of the WGA's publication.[3]

The Impact of the Government's Fiscal Consolidation Measures

3. We examined the Treasury over its progress in reducing the deficit during the current Parliament. The Treasury explained that the deficit had come down by just over a third in four years, reducing from 11% of Gross Domestic Product to an expected 5.5% by the end of this Parliament.[4] The Treasury told us that it had planned for the deficit to be reduced by £126 billion which would have been achieved from a combination of increased tax revenues and spending cuts. Some £26 billion of the reduction related to increased tax revenues whilst £100 billion would be achieved through savings in public expenditure. Officials did not explain where all of these savings would come from but did set out that some £20 billion would be gained 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 with the remainder coming from other measures, although these were not quantified.[5]

The government faces fiscal risks in meeting its current and future plans

4. We questioned whether the scale of deficit reductions the Treasury envisaged during this Parliament and in the future were realistic. The Treasury noted that the government has committed to protect funding for the state pension, the NHS, overseas aid and schools. As a result, some £250 billion out of just over £700 billion expenditure was protected from spending cuts.[6] The Treasury also told us that it had been overachieving in respect of its spending plans and that there were further measures to come in respect of welfare reform which were not planned to impact upon the deficit until towards the end of this Parliament.[7]

5. The Treasury admitted that the spending reductions made so far were less than the Treasury had forecast in the Spending Review 2010, partly because tax receipts were lower than expected. The Treasury explained that the lower tax revenues were in part due to the large numbers of new lower paid jobs, government policy to increase the tax threshold above which people begin to pay income tax, and economic growth being below expectations.[8] We asked whether the lower paid jobs that were being created were being subsidised through the tax credit mechanism. The Treasury told us that tax credit expenditure is rising slightly in real terms.[9]

6. The WGA includes some accumulated £1.17 trillion of public pension liabilities as at 31 March 2013. We asked the Treasury whether the capacity and capability in both the Treasury and departments existed to bring down these liabilities. The Treasury maintained that it did have the necessary capacity and capability and noted that it had put in place measures to manage these liabilities such as seeking to cap the taxpayer's risk on pension schemes. The Treasury also added that the pension liability was subject to changes in the discount rates and that, as these fell due to falling long term interest rates, the pension liability increased.[10] The Treasury has carried out an evaluation on how future liabilities would evolve and told us that, with the increased pension contributions that were now being paid, the past pension deficit was being addressed.[11]

7. The WGA also highlights that there are other areas which represent considerable uncertainty for the management of the public finances, such as the reduction in the value of student loans because of higher write-offs and the increase in liabilities in respect of nuclear decommissioning. The Treasury explained that the reduction in the value of student loans was linked to lower than expected wage growth leading to a delay in the point that loans would start to be repaid. The Treasury noted that the increase in the nuclear decommissioning provision was due to the uncertainty surrounding the future decommissioning costs but admitted that it was hard to predict when this number would stabilise.[12]

8. We asked the Treasury how the WGA had been used to influence decisions in the current spending round. The Treasury told us that, during the 2013 spending round, it had looked at the WGA balance sheet position to help inform their plans for the sale of assets. However, the Treasury acknowledged that there were more opportunities for its Spending Teams to use the WGA to inform policy and that it was increasing accountancy skills in policy teams to understand published accounts better.[13]

Additional information for Parliament

9. The WGA discloses net income and expenditure between central government, local government and public corporations.[14] We asked the Treasury about its plans to provide further information on a regional and national level. The Treasury explained that its current focus had been on the timeliness and the qualifications on the WGA but that the inclusion of information on a national and regional basis within the WGA was part of its long term plans.[15]

10. We questioned whether additional regional disclosure would help the Treasury in identifying efficiencies at a regional level. The Treasury told us that it would consider this as part of their forward work programme for the WGA. The Treasury also told us that it was working closely with the Local Government Association on further collaboration on public services.[16] On the subject of national spending we also asked the Treasury whether the proposed tax raising powers for the Scottish Government would impact upon the public expenditure limits for the United Kingdom and whether any devolved taxes raised in Scotland would lead to England having to reduce expenditure totals to compensate. The Treasury told us that setting the framework for the new devolution settlement was of critical importance in reaching a new sustainable settlement and that where an individual component of the United Kingdom was allowed to spend more, and the overall spending limit was unchanged, then reductions would have to be made elsewhere.[17]

11. We have previously recommended that the Treasury disclose the levels of losses and fraud and error across the whole of government within the WGA.[18] The Treasury accepted this recommendation and plan to implement it in July 2015 for the 2014-15 WGA. We asked but the Treasury was unable to provide a total figure of fraud and error across government. However, the Treasury did provide estimated figures for HMRC and the Department for Work & Pensions and told us that while it did not currently have comparable data across all departments they had written to departments with guidance and hoped to have a more informed position in the next few months.[19] The Treasury subsequently wrote to us setting out that the estimated level of fraud and error in 2013-14 was £2.0 billion for tax credits administered by HMRC, £3.3 billion for benefits and pensions administered by the Department for Work and Pensions and that there was some £42 million of fraud and error relating to funds administered by other government departments.[20]

1   Comptroller and Auditor General, Report on the Whole of Government Accounts 2012-13, June 2014 Back

2   HM Treasury, The Whole of Government Accounts 2012-13, June 2014 Back

3   Q 58 Back

4   Q 4 Back

5   Qq 13-18 Back

6   Q 30 Back

7   Qq 23, 34- 35 Back

8   Q 9 Back

9   Q 12 Back

10   Q 39 Back

11   Q 44 Back

12   Qq 104, 107 Back

13   Qq 115-116 Back

14   HM Treasury, The Whole of Government Accounts 2012-13 P28, June 2014 Back

15   Qq 58, 60 Back

16   Q 60 Back

17   Qq 119-120 Back

18   The Committee of Public Accounts, Whole of Government Accounts 2011-12, HC 667, December 2013 Back

19   Qq 45 -52 Back

20   Letter from Sharon White 13th November 2014 Back

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Prepared 7 January 2015