A collaboration between ICAEW and leading economic forecaster the Centre for Economics and Business Research (CEBR) has revealed there could be a further £1.13 trillion of liabilities over and above the headline public sector debt already published by the Office for National Statistics (ONS).
The study which is published today (Monday 12 July), provides an overall picture of the size of the United Kingdom's public sector debt. It also incorporates public sector liabilities that are currently considered to be 'off-balance' sheet or not covered in the official national debt measure. These include:
- Public Private Partnerships / Private Finance Initiative
- Public Sector Pensions
- Other contingent liabilities (including Network Rail and financial sector interventions)
The research explores the different ways of measuring public sector debt in both a domestic and internationally comparable context, making a number of recommendations which will help make public accounts more transparent and more accessible to Parliament and the public.
Michael Izza, Chief Executive of ICAEW, said: "For many years, we have campaigned for transparency, accountability and good governance in the public sector in order to support the effective delivery of public services and value for taxpayers money.
"It is clear from this comprehensive research that there are some deep seated problems to address. While there are important debates to be had about specific spending cuts, I believe that meaningful reform is necessary to underpin sustainable public finances over the long term and create a culture of fiscal responsibility.
"We also believe that uncertainty and opacity about these liabilities is more damaging than the provision of robust information. Market Confidence can only be enhanced through better management and scrutiny of public finances and through the provision of audited financial information from across the whole of government."
The reports key recommendations include:
- The Office of Budget Responsibility (OBR) has a key role to play, working with bodies like ICAEW, in advising and informing public and parliamentary debate around the meaning and context of public financial information, especially public debt figures.
- The OBR should raise public and parliamentary awareness of the technical and accounting issues behind why liabilities are currently not considered as part of the public sector debt assessments, including public service pensions and PFI/PPP contracts, and the balance between international comparability and transparency.
- Alongside the publication of ONS Public Sector Net debt, the government should examine the viability of publishing figures for total liabilities for privately financed public sector procurement as a separate item.
- All UK political parties should support the timely completion of the 'Clear Line of Sight' project for all public bodies to report to IFRS and the Whole of Government Accounts Project which will bring statutory accounts across the public sector together in one place for the first time on an auditable basis
- The OBR should lead a public inquiry into quantifying the extent of contingent liabilities exposure, i.e. liabilities that the government is exposed to through public expectation rather than through contract. Financial sector intervention, Network Rail debt and potential default, and other public body implicit guarantees all could be considered as part of this inquiry.
Charles Davis, ICAEW Economic Consultant and Managing Economist for Cebr, added: "The Office for Budget Responsibility has a key role to play, with the Office for National Statistics, in enhancing transparency of the public finances. In the same way that the OBR set out clearly auditable assumptions for its latest forecast of growth and public borrowing, a clear exposition of public sector liabilities and assumptions used in estimating them would improve understanding of the risks ahead - however large or small they might be.
"Our research draws upon existing publicly available data and previously undertaken analysis to illustrate that the liabilities that are not included in the official public sector net debt figure are large but, in many cases, uncertain. Our cautious lower estimate of the additional public sector liabilities is £913 billion, with the upper bound at £1,339 billion. Public sector pension liabilities are by far the largest consideration.
"As well as improving transparency in the UK, it is important for international bodies such as the European Commission to develop a clear framework for comparing public sector liabilities that may previously not been considered on balance sheet or part of standard measures of public debt but may be vital in assessing fiscal sustainability. Clarity and transparency on the public sector finances has never been more vital in the context of recent concerns over public sector debt, particularly in the advanced economies."
Media enquiries:
Contact Howard Rhoades, ICAEW press office, on T: 020 7 920 8616 or E: howard.rhoades@icaew.com