ICAEW has provided an in-depth analysis of the Whole of Government Accounts 2014-15 for the Institute of Fiscal Studies' Green Budget 2017, which confirm that the UK's long-term liabilities (the accounting deficit) are £3.6 trillion, much bigger than the headline deficit of £1.5 trillion quoted in the national accounts.
According to WGA 2014-15, total liabilities have grown significantly over recent decades as the consequences of decisions made by successive governments and resulting in an accounting deficit that equates to £130,000 per household and is shrinking slower than the standard debt measure.
ICAEW Public Sector Director, Ross Campbell, says: "The total liabilities of £3.6 trillion reported at 31 March 2015 have now reached 191% of GDP and are almost two and half times the narrower measure of public sector net debt reported in the National Accounts of £1.5 trillion. In order to restore trust in Government, and to give taxpayers a clear picture of how much liability the Government has assumed on their behalf, it’s important that more emphasis be placed on the WGA.”
The Whole of Government Accounts (WGA) provide a way of reporting on the financial consequences of decisions, in particular by reporting on the assets created or the liabilities incurred each financial year by public bodies across the UK.
While these accounts are world-leading in public-sector financial reporting, in its analysis for the IFS Green Budget 2017 ICAEW concludes that progress is needed to reduce the 14 months taken to produce them, which hinders transparency and reduced scrutiny, according to Campbell.
He argues: “This 'cloak and dagger' approach should be abandoned. ICAEW believes Government should aim to publish the WGA accounts ready for the Autumn Budget at the end of each Financial Year in April, as this would help policy makers better understand the consequences of policy decisions and provide up-to-date information about the alarming rate at which the Government’s liabilities are building up.”
ICAEW's analysis also concludes that improvements should be made to the accompanying narrative disclosures bringing them in line with the standards expected of listed companies, which could further support effective decision making.
Campbell says that the impact of the liabilities the Government has built up can be seen acutely in the NHS.
"The liability for clinical negligence grew by £3.8bn during 2014/15, reaching a new high of £29bn – with £1.3bn paid out in settlements," he says. "The annual change of £3.8bn alone was equivalent to 4% of NHS England’s net expenditure.
"With the NHS currently experiencing staffing issues, it’s interesting to note that the amount Government paid out in the year 2014/2015 to settle clinical negligence claims is equivalent to the salaries of thousands of additional doctors. If the Government behaved more like a business, it would look at the trade-off between increasing NHS staffing levels in high risk areas and the amount it pays to settle clinical negligence.”
|The effectiveness of WGA as a tool to support good public financial management would be improved by a better commentary and by more timely preparation.|
|The focus on reducing the ‘near cash’ fiscal deficit measure in the National Accounts risks less attention being given to controlling costs incurred that will be settled in the longer-term.|
|After debt, the most significant liabilities are for public sector pension entitlements. Decisions made to provide defined benefit pensions to employees have exposed the public sector to significant economic and demographic risks.|
|Better information is needed to allow decision makers to choose between spending today and increasing long-term liabilities, such as deciding between investing in addressing medical failures versus the cost of clinical negligence, for which £29bn has been set aside to settle claims up to 31 March 2015.|