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HM Treasury identifies ways to make better use of the public balance sheet

Author: ICAEW Insights

Published: 12 Apr 2021

HM Treasury’s Balance Sheet Review highlights significant opportunities already identified, reforms undertaken and savings delivered to manage the nation’s assets and liabilities.

The Balance Sheet Review was launched at Autumn Budget 2017 to identify opportunities to dispose of assets that no longer serve a policy purpose, improve returns on retained assets and reduce the cost and risk of liabilities. 

ICAEW strongly supports HMT’s initiative to carry out a thorough review of how the government balance sheet is being managed, taking advantage of the information provided in the Whole of Government Accounts (WGA) and in the data collected from the over 8,000 entities in the public sector in the UK that it consolidates. 

The report demonstrates that active management of the balance sheet can lead to tangible benefits for taxpayers and society. A number of benefits have long been associated with a well-managed balance sheet, such as better planning, lower interest costs and better deployment of assets earning greater returns. 

The report starts by discussing the background to the review and the public sector balance sheet framework, followed by three broad chapters looking at different aspects of what the balance sheet has to offer:

1) Transparency – long-term impacts of policies on the balance sheet.

2) Asset management – delivering better value for money from assets.

3) Risk management – strengthening control of long-term risks and the costs of liabilities.

For an in-depth understanding and analysis of HMT’s Balance Sheet Review, click here.

While the report marks the conclusion of the Review, the government’s focus on improving balance sheet management will continue. Future work is highlighted in the report, but it is not clear who is taking ownership and who will monitor progress. Some of the proposals were being acted upon without a formal balance sheet review, and it will be interesting to see what further actions will arise as a result of this extensive review. 

Below are some themes we believe government officials and select committees should be thinking about:

Query 1: The relatively high-level nature of the public sector balance sheet framework set out in the review raises a number of questions, the first of which is how the framework will be developed and embedded into the workings of government at all levels? 

Query 2: How can public sector annual reports and accounts be improved to enable more effective evaluation of policies, linking the achievement of objectives, outputs and KPIs (for example) to the balance sheet resources used and not just to the cash cost incurred? 

Query 3: Many of the initiatives described in the report rely on good data – to what extent is the Balance Sheet Review able to interact effectively with the National Data Strategy?

Query 4: How do key risks facing the UK not explored in this report, such as climate and demographic risks, fit into the public sector balance sheet framework? 

Query 5: How can the UK government convert the conclusions of the Balance Sheet Review from a set of examples into an embedded way of working across the whole of the public sector?

Henning Diederichs, Manager, Public Sector Financial Reporting for ICAEW, commented:

“The Balance Sheet Review was a good opportunity to make better use of the Whole of Government Accounts and to consider how to utilise the balance sheet in making greater strides towards net zero and sustainable public finances. It is not wholly clear who will be accountable for taking the initiatives forward and how progress will be evaluated. Strong balance sheet management is a key part of the long term financial management of public sector resources.”

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