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.
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. 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.
The Impact of the Government's Fiscal Consolidation
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
Additional information for Parliament
9. The WGA discloses net income and expenditure between
central government, local government and public corporations.
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.
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.
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.
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.
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.
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.
1 Comptroller and Auditor General, Report on the Whole of Government Accounts 2012-13, June 2014 Back
HM Treasury, The Whole of Government Accounts 2012-13, June 2014 Back
Q 58 Back
Q 4 Back
Qq 13-18 Back
Q 30 Back
Qq 23, 34- 35 Back
Q 9 Back
Q 12 Back
Q 39 Back
Q 44 Back
Qq 104, 107 Back
Qq 115-116 Back
HM Treasury, The Whole of Government Accounts 2012-13 P28, June 2014 Back
Qq 58, 60 Back
Q 60 Back
Qq 119-120 Back
The Committee of Public Accounts, Whole of Government Accounts 2011-12, HC 667, December 2013 Back
Qq 45 -52 Back
Letter from Sharon White 13th November 2014 Back