ICAEW.com works better with JavaScript enabled.

Financial sustainability and assurance in the public sector

Author: ICAEW Insights

Published: 27 Oct 2021

What are the prospects for our public services given the future challenges they face? Adrian Crompton, Auditor General for Wales, examines the question of financial sustainability in the public sector.

In the 6th century BC, Chinese sage Lao Tzu said: “If you do not change direction, you might end up where you are headed.” Assessing sustainability is about addressing this question: are public services on a path that will help them survive and thrive? If not, what are (or should) they be doing to change course.

At Audit Wales, we have recently published a series of reports, including our Picture of Public Services 2021 and Financial Sustainability of Local Government, looking at the path public services have been on and critical issues they face in the future.

COVID-19 has challenged and disrupted public services like never before. But even before COVID-19 hit, public services in Wales were stretched and struggling.

The Welsh Government’s revenue budget fell by 3% between 2010-11 and 2019-20. Despite this, the NHS and social care saw real terms rises of 16% and 18% respectively. Spending on schools fell by 3%. Other services, particularly discretionary local services, also saw very large cuts.

Even in the NHS, extra money runs up against recruitment difficulties, further cost pressures and rising demand - with bed occupancy levels above safe and recommended levels.

Despite significant increases in Welsh Government spending (£5.1 billion in 2020-21 and at least £2.6 billion in 2021-22), the pandemic has exposed and amplified problems that already existed.

That brings us back to that question of sustainability. What are the prospects for our public services in surviving and thriving given the path they have been on and the future challenges they face? 

And over what time frame should they consider sustainability? Medium-term financial strategies often look three to five years ahead. But, in Wales, the Well-being of Future Generations (Wales) Act 2015 requires many public bodies to take a longer-term view, balancing current and future needs so that decisions taken now to support short-term financial sustainability do not compromise the ability of future generations to meet their needs.

As auditors, when considering sustainability, we need to have a clear focus on areas such as:

  • Financial strategy: does the strategy consider likely levels of future funding and the anticipated demand for, and cost of, services? And does it ensure that ‘short-term’ solutions do not impair sustainability over the longer term?
  • Reserves: does the body have healthy levels of usable reserves to meet funding pressures and to support longer-term financial sustainability, including ‘invest to save’ initiatives?
  • Planning and forecasting: how able is the body to plan and forecast accurately to reduce the risk of unforeseen financial pressures and to provide a more certain base for delivery of key objectives and statutory responsibilities?
  • Effective oversight: are senior managers and leaders fully sighted and informed of the financial position, of key risks to financial sustainability and of the progress of plans to mitigate those risks?

Our recent Picture of Public Services 2021 report observes that the coming years will offer little respite for the public finances in the face of rising demands. Of course, the question of sustainability and where we are headed is about more than just the money. There are important challenges around public service reform, therefore, that must be also addressed. The challenge of such reform and the sustainability of the public sector’s financial position are inextricably linked and will remain central to our work as auditors for many years to come.

Adrian Crompton will be giving a keynote presentation at the ICAEW Public Sector Sustainability Conference on 10 December. See here for more information and to register.

Insights special: Repairing public finances

ICAEW Insights takes a closer look at the efforts being made to repair public finances in the wake of the coronavirus pandemic.

A stethoscope

More support

ICAEW Community
Public Sector polaroid
Public Sector Community

The go-to place for guidance on issues affecting finance professionals working in and with the public sector. With a range of dynamic services, ICAEW provides valuable tools, resources and support tailored to the public sector.

ICAEW guidance and support on developments in public sector
Public sector

See the latest insights and support on public sector finance, audit, financial management and financial reporting.

A megaphone
Stay up to date

You can receive email update from ICAEW insights either daily, weekly or monthly, subscribe to whichever works for you.

Sign up