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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