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ICAEW analysis of WGA 2016/17

On 28 June 2018, the UK Government published its 8th Whole of Government Accounts (WGA) - the UK government’s annual financial report for 2016/17. Here ICAEW experts provide a summary of the WGA.

Whole of government accounts for the year ended 31 March 2017

ICAEW welcomes the publication today of the 2016-17 Whole of Government Accounts (WGA).

The WGA incorporates central government, devolved administrations, local authorities and public bodies across the UK into a single financial report, consolidating the financial results of over 7,000 organisations. It provides a significantly more comprehensive analysis of the public finances than that presented using the ‘official’ numbers in the statistically-based National Accounts.

The WGA comprises a full set of primary statements prepared in accordance with International Financial Reporting Standards (IFRS), together with supporting financial information and commentary. This includes a balance sheet, which means that the WGA incorporates expenditures that are excluded in the National Accounts, in particular on long-term obligations that will be settled in the future, such as public sector pensions, nuclear decommissioning and clinical negligence.

We were pleased to see improvements this year in the quality of the WGA as a financial report. There has been further progress made on the financial commentary, and on financial risks and how they are managed. The report now also includes information about how WGA is being used in government.

Unfortunately, the WGA is still not timely. Published some 15 months after the end of the financial year to which it relates, the WGA takes much longer than the two to three months typical in the private sector.

2016/17 highlights

  • Accounting loss of £98bn, more than twice the fiscal deficit of £45bn.
  • Revenue £721bn - up 3.9%.
  • Expenditures £812bn - flat (excluding one-off charges).
  • Total assets £1.9tn (94% of GDP) – up £161bn.
  • Total liabilities £4.3tn (214% of GDP) – up £596bn.
  • Net liabilities £2.4tn (120% of GDP) – up £435bn.
  • True and fair audit opinion, but with 5 qualifications and 2 emphasised matters.

Financial results

The continued shortfall in revenues compared with public expenditures resulted in an accounting loss in the WGA of £98bn in 2016-17. This was a £19bn improvement over the previous year (once a £125bn one-off charge last year is excluded), with revenue up 3.9% (albeit below GDP nominal growth of 4.4%), while total expenditures were flat, as austerity measures constrained expenditures on public services below inflation.

Net liabilities increased by £435bn, principally driven by a £361bn revaluation of pension obligations, together with the accounting loss of £98bn. This was offset by a net £24bn in other movements.

The £410bn increase in pension liabilities to £1.8bn arose primarily from a reduction in the discount rate used to value them from 1.37% to 0.24%. This volatility in the pension liabilities as they are revalued each year obscures the £89bn that was added to pension obligations during 2016-17, significantly in excess of the £40bn paid out in benefits.

Fixed assets of £1,202bn, were £53bn or 4.2% higher than the previous year, reflecting the relatively low level of investment in infrastructure and other capital assets.

Nuclear decommissioning obligations amounted to £185bn, a slight increase over the £182bn balance last year. Clinical negligence provisions increased from £58bn to £67bn, mainly as a result of adding one more of year of claims to the total.

The WGA does not record a value for the Hinkley Point C contract for difference, a derivative financial instrument entered into during 2016-17 in connection with the construction of a new nuclear power station. According to the WGA, its fair value (estimated to be £29bn) was not recorded on the balance sheet partly due to the uncertainty of estimating wholesale energy prices to the end of the contract in 2060.

Preparation of the wga

The team at HM Treasury have made further improvements this year, with enhancements to the financial commentary, and a greater focus on risks to government and how these are managed. There is also now a country and regional breakdown of public services expenditure, while information has been provided on the financial effects of the UK’s departure from the EU.

There have also been a number of improvements in the analysis provided in the notes to the financial statements, although more still needs to be done to improve data collection to provide greater insight into ‘other’ categories.

The production process continues to develop, however, there have been setbacks caused by problems at the Department for Education relating to academy schools. A new financial reporting process involving the establishment of a separate Sector Annual Report and Accounts for academy schools is hoped will be able to provide adequate financial reports to the Treasury in future years. It is important that accountability is not lost now academy schools are no longer included in the Department for Education accounts, and that they are subject to sufficient scrutiny, including by the Public Accounts Committee.

These and other improvements should allow the WGA to be produced in around 10 months, which would be a significant achievement for all those involved.

Audit qualifications

The Comptroller & Auditor-General continues to qualify his audit opinion on the financial statements in the WGA. These comprise not incorporating all government-controlled entities into the WGA (most significantly The Royal Bank of Scotland); inconsistencies between central and local government accounting policies (mainly relating to the valuation of the road network); the Ministry of Defence not fully accounting for assets it leases through outsourced contracts; errors in the accounting for land and buildings of academy schools; and the use of August 2017 balances for academy schools rather than March 2017.

The inherent uncertainties in valuing nuclear decommissioning obligations continued to be emphasised in the audit report, with a new emphasis of matter added relating to the valuation of the Hinckley Point C contract for difference.

The WGA includes details on how Treasury and the National Audit Office intend to try and reduce the number of audit qualifications. The return of RBS to the private sector will help, as will planned improvements in the accounting for academy schools.


The further improvements in the quality of the WGA this year are welcome, with the WGA providing the most comprehensive picture of the public finances that is available.

It remains disappointing that it takes in excess of a year for the WGA to be produced, and it is to be hoped that plans to reduce the time taken to ten months are successful. Even if this is achieved, the WGA will still take significantly longer than the two to three months taken to prepare the annual reports of comparable private sector organisations. Unfortunately, there does not yet appear to be sufficient appetite within government for the reforms to financial processes, systems and culture that would be necessary to bring the public sector closer to standards of best practice for financial management.

Despite the lack of timeliness, the WGA is one of the most important documents that the government will produce this year. With total liabilities of 214% of GDP and net liabilities of 120%, the WGA provides a sobering picture of the public finances that needs attention – from within government, from parliamentarians, and from the wider public on whose behalf the WGA is prepared.