The Government Balance Sheet Contents

1Managing the public finances

1.We took evidence from HM Treasury on the basis of the Comptroller and Auditor General’s (C&AG) report on the Whole of Government Accounts for the year ended 31 March 2015. Our evidence session was also informed by three accompanying reports produced by the C&AG in respect of the government balance sheet: on provisions, contingent liabilities and guarantees; on financial assets and investments; and on pensions.1

2.HM Treasury published the 2014–15 Whole of Government Accounts (WGA) in May 2016. The WGA was first produced for 2009–10, making 2014–15 the sixth iteration. In 2014–15, the WGA reported net expenditure (total expenditure less income) of £152 billion: an increase of £6.3 billion compared to the previous year. Net liabilities (the difference between assets and liabilities) increased to £2.1 trillion from £1.8 trillion, mainly due to increases in the net public sector pension liability of £190 billion and in government borrowing of £78 billion.2

3.At the end of 2014–15, the Government’s pension liability for current and former public sector workers stood at £1.5 trillion and was the single largest liability on the balance sheet. It has risen by 32%, from £1.1 trillion, since it was first reported in the WGA in 2009–10.3 Public sector occupational pension schemes cover staff working in central government (e.g. Civil Service, NHS), local authorities and arm’s-length bodies including public corporations, as well as some employees transferred from the public to the private sector or those working for some private sector companies which have been contracted to provide public services, particularly in the health sector.4

4.Provisions and contingent liabilities in the 2014–15 WGA totalled £251 billion. Provisions have increased by 71%, from £102 billion to £175 billion, since 2009–10.5 Contingent liabilities have increased by 85%, from £41 billion to £76 billion, since 2009–10.6 Provisions are those liabilities which will probably need to be paid at some point in the future but where the timing or amount of the payment is uncertain. The most significant provisions relate to nuclear decommissioning (£83 billion in 2014–15) and clinical negligence claims against the NHS (£28 billion in 2014–15).7 With contingent liabilities, there is more uncertainty around whether or not the Government will have to pay the liability or the amount cannot be estimated reliably; so contingent liabilities are not recognised on the balance sheet but are disclosed in notes to the financial statements. In 2014–15, the largest contingent liabilities were tax dispute claims where taxpayers challenged HM Revenue & Customs’ interpretation of tax law (£36 billion) and those clinical negligence liabilities not already provided for (£14 billion).8

5.The 2014–15 WGA also shows that the Government’s financial assets, largely concentrated in the banking industry (Royal Bank of Scotland, Lloyds Bank, Northern Rock and Bradford & Bingley) and the student finance sector (student loans) were worth £400 billion. The Government has sold its shares in Royal Mail and Eurostar and plans to sell further financial assets over the remainder of the Parliament.9

Timeliness and transparency

6.The WGA is the largest consolidation of public sector accounts in the world. It brings together the financial activities of over 6,000 organisations across the public sector, including central and local government as well as public corporations such as the Bank of England. Since the 2009–10 WGA was first published in November 2011, HM Treasury has improved the quality of data feeding into the WGA and the accounts production process. In March 2015, HM Treasury achieved the significant step of publishing the 2013–14 WGA within a calendar year of the year-end and it has a target to publish WGA within 9 months of the year-end.10

7.However, the 2014–15 WGA was not published until May 2016, 14 months after the year-end, due to delays to the Department for Education accounts. The Department for Education faces increasing challenges in consolidating the growing number of academies and, as a result, did not lay its 2014–15 accounts before Parliament until April 2016.11 Furthermore, the C&AG’s opinion was qualified on a number of issues, including the limited audit evidence available to support £33 billion of academy trust land and buildings. Nonetheless, the improvements that HM Treasury has made, such as increasing validation checks, meant that it was able to publish WGA seven weeks after the Department for Education accounts.12 We asked whether new arrangements that HM Treasury has put in place around academies will stop these delays happening in future years. HM Treasury told us that it hoped the Department for Education’s accounts would be produced earlier in 2016–17 but that it did not think the issues which caused the accounts to be qualified would be resolved until 2017–18. HM Treasury assured us it was working closely on this with the National Audit Office and the Department for Education.13

8.Although the WGA is a comprehensive record of the use of public resources, it is difficult for a reader of the accounts to evaluate trends in the figures it provides and to assess the Government’s performance.14 For example, we note that it is not clear from the WGA why the public sector pension liability increased by £190 billion in 2014–15.15 Similarly, the WGA provides limited detail to explain how much of the year-on-year movement in provisions is due to changes in the discount rate used to value them in today’s prices.16 HM Treasury acknowledged there was more work to do to make the information in the WGA more transparent and to explain movements on the balance sheet.17

9.The previous Committee recommended, in 2015, that HM Treasury develop and implement an action plan and timetable for disclosing expenditure on a national and regional basis in the WGA.18 As public services become increasingly devolved, we asked whether it will be possible, in the WGA or elsewhere, for Parliament to follow the money going to local areas. HM Treasury told us that it already publishes regional spending data each year as part of its Public Expenditure Statistical Analysis.19 However, in a subsequent note, HM Treasury wrote that it shares the Committee’s view that such analysis should be included in the WGA and explained that it is reviewing what this presentation will mean for its data collection and analysis. It has committed to provide an update on the feasibility of including regional data in the 2015–16 WGA and to implement it by March 2017 in line with the previous Committee’s recommendation.20

Using the WGA to manage public finances

10.There is no more complete record of what the Government owns, owes, spends and receives than the WGA.21 As such, the WGA is a key part of a set of information which can be used to understand the Government’s financial performance and to provide accountability. We questioned HM Treasury about how it uses the WGA to help carry out its role as the Government’s finance ministry. HM Treasury replied that it used WGA data during last year’s spending round to compare performance across departments and to inform discussions with government departments. In particular, HM Treasury said it used the data to review whether departments were making adequate and justifiable provision for future liabilities; how good they were at managing contingent liabilities and debtors; and also their use of assets. HM Treasury also cited other organisations such as the Office for Budget Responsibility (OBR) and the Institute for Fiscal Studies which use the WGA.22

11.The other main sources of information on the public finances are the National Accounts published by the Office for National Statistics, which provide a statistical view of the Government’s finances, and the OBR’s forecasts of economic performance and public finances.23 HM Treasury uses two measures from the National Accounts to assess the health of the public finances: Current Deficit and Public Sector Net Debt. The nearest equivalent figures reported in the WGA are net expenditure and net liabilities. We asked whether the impact of the WGA was lost, given the Chancellor’s targets for the National Accounts’ measures and the significant emphasis on managing and reporting against Current Deficit and Public Sector Net Debt, rather than against the WGA figures for net expenditure and net liabilities. HM Treasury explained that Net Debt was the main measure it would use to assess the resilience of the public finances, and which informs fiscal policy, but highlighted that the value of the WGA was the impact it had on departments’ spending plans and that WGA also draws attention to risks that HM Treasury should be thinking about but which are not reported in the National Accounts. Measures such as net debt are narrower in focus than the WGA and do not capture the impact of liabilities such as public sector pensions or future risks in the WGA which have not yet had an impact on cash.24 For example, in 2014–15 WGA reported net liabilities of £2.1 trillion on an accounting basis while net debt was £1.5 trillion. Net expenditure in 2014–15 WGA was £152 billion while the current deficit reported in the National Accounts was £57 billion.25 Although the WGA sets out the key differences between the National Accounts measures and the financial position in the WGA, it does not explain how the different sources of information come together to inform its policy decisions nor the impact that its actions to manage risks to affordability have on movements in the balance sheet.26 HM Treasury recognised that it needs to improve the information it provides in the WGA.27

12.We challenged HM Treasury on whether it gave equal importance to managing changes in the balance sheet, such as increases in the nuclear decommissioning provision, which were not cash and would not therefore affect net debt. HM Treasury explained that they had been taking the nuclear decommissioning provision seriously and had discussions with the Nuclear Decommissioning Authority and the Department for Energy and Climate Change about improving the management at the Sellafield site and getting a better understanding of the longer-term costs.28 The Treasury told us that its assessments of affordability are informed by the OBR’s projections in its Fiscal Sustainability Report which highlight risks to the public finances not captured by the net debt measure. From 2017, the OBR will also produce a fiscal risk statement which will provide more analysis.29 However, the OBR forecasts do exclude some significant accounting movements seen in the WGA, such as the impact of the discount rate used to value liabilities in today’s prices. HM Treasury acknowledged that the WGA could be used more across government.30

Improving financial management

13.We questioned HM Treasury on whether it paid enough attention to financial management across government; noting that HM Treasury did seem to give as much emphasis to developing the more sophisticated approach to financial management that long-term government projects and programmes need, as it did to managing and reporting against measures such as net debt set by the political process. HM Treasury agreed that there is more to do to develop tools to improve the quality of long-term decision making and to consider the impact on long-term financial management and planning when making political decisions around spending reviews and budgets.31

14.We asked whether there was a tension between long-term planning and the way that departments have to manage annual budgets which could lead to poor decisions if departments spend budget remaining at the year end rather than give it back.32 HM Treasury explained that it has built in multi-year budgeting and has improved its forecasting of the year-end position to facilitate earlier conversations with departments about flexibility. The Comptroller and Auditor General noted that departmental plans are light on detail after the first 12 months and there seemed a long way to go before departments were thinking seriously about the longer-term. HM Treasury explained that it would be asking to see a detailed four-year plan for each department to help to instil discipline.33 Nonetheless, we recognise the progress that the Government has made: the OBR’s fiscal sustainability report considers long-term trends and the Major Projects Authority looks at long-term projects which HM Treasury told us had increased transparency and greater scrutiny.34


1 C&AG’s Report, HM Treasury, Whole of Government Accounts 2014–15, 27 May 2016; HM Treasury, Whole of Government Accounts 2014–15, Session 2016–17, HC 28, 27 May 2016; C&AG’s Report, Evaluating the government balance sheet: provisions, contingent liabilities and guarantees, Session 2016–17, HC 462, 30 June 2016; C&AG’s Report, Evaluating the government balance sheet: financial assets and investments, Session 2016–17, HC 463, 30 June 2016; C&AG’s Report, Evaluating the government balance sheet: pensions, Session 2016–17, HC 238, 30 June 2016

3 C&AG’s Report on Pensions, para 2 & 13; HM Treasury, Whole of Government Accounts 2009–10, Session 2010–2012, HC 1601, 29 November 2011

4 C&AG’s report on Pensions, para 1.5 & 2.5

5 C&AG’s Report on Provisions, Figure 3; HM Treasury, Whole of Government Accounts 2009–10, Session 2010–2012, HC 1601, 29 November 2011

6 C&AG’s Report on Provisions, para 4 and Figure 3; HM Treasury, Whole of Government Accounts 2009–10, Session 2010–2012, HC 1601, 29 November 2011

7 C&AG’s Report on Provisions, para 1.9a and 1.9b

10 C&AG’s Report on WGA 2014–15, paras 1, 2, 12, 1.38–1.39

18 Committee of Public Accounts, Whole of Government Accounts 2012–13, Twenty-sixth report, Session 2014–15, HC 678, 7 January 2015, para 4

20 HM Treasury (WGA0001)

25 HM Treasury, Whole of Government Accounts 2014–15, Table 2.A and Table 2.B




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10 October 2016