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Why politicians should pay attention to government financial reports

Author: ICAEW Insights

Published: 22 Nov 2022

Following last week’s Autumn Statement, Dr Elaine Stewart, a Lecturer in Accounting at Queen’s University, argues that politicians should use accounting data to inform policymaking and to explain how public money has been spent.

Sustainable public finances are a prerequisite for macroeconomic stability and the November Autumn Statement sets out the decisions taken to underpin the economy and support businesses through this difficult period. While it has less detail than the budget, it gives key audiences an indication of the planned spending, taxes and priorities for the period ahead.

Budgets and Autumn Statements receive substantial media coverage, yet less emphasis is placed on communicating how these plans come to fruition and whether they achieve what they set out to achieve. Why is this? 

Well, put simply, the Budget and Autumn Statements are the power tools. They are what outline how much money the government has to borrow each month and what drives the perception of the markets’ confidence in the government. Send a bad signal to the markets and the fallout is immense. We have seen this in recent months with the mini budget, sending the UK economy into turmoil along with a £60bn black hole in public finances. 

Indeed, the financial outlook is depressing. With whispers that the UK is already in a recession along with rising inflation and an ongoing cost-of-living crisis, financial reports deserve more attention than ever, particularly from politicians.

The United Kingdom central government is among the most advanced when it comes to financial reporting. Following a series of reforms over the last three decades, every central government department must prepare a set of annual accruals-based consolidated accounts. They sit within the back end of annual reports and accounts, which also provide an overview of performance by the department, along with its governance and accountability arrangements. 

Part of the drive to change away from a pure cash-based approach was to encourage departments to think about their budgets and their resources (spend) in a different way and to think about the resources they had control of, not just the cash coming in and going out.

In the private sector, financial statements are the backbone of any company and used as a tool by investors, shareholders, stock markets and banks. While the appearance of central government accounts is now uncanny to the private sector, the reliance on them by politicians, who should be key users to these reports, is not. 

In the current economic, political and environmental climate, UK finances are fragile. Financial reports provide some fascinating insights into the mechanics of public spend that deserve Mastermind’s dramatic lighting and rigorous questioning. 

For example, in the 2020/21 financial year, the Department of Health and Social Care reported a £4.7bn (yes billion) decrease in the value of Personal Protective Equipment due to it being not ‘fit for purpose’, highlighted by the Public Accounts Committee as equivalent to the value of an aircraft carrier or 500,000 hip replacements. In addition, the Department of Work and Pensions reported £8.5bn in overpayments of benefits due to fraud and error in 2021/22. Or the estimated £4.9bn of losses due to support loans that were issued to ineligible businesses at the start of the pandemic by the Department of Business, Energy and Industrial Strategy. 

These all represent physical losses to the taxpayer and a waste of vital resources. While there is an opportunity for each Select Committee to address questions from Parliament surrounding the annual reports and accounts, they are rarely attended by politicians. 

Politicians are not accountants, nor do they need to be. However, they are in the customer-facing role of the public sector. They are who the citizens see in the media every day. They are whom the taxpayers connect with and look up to. 

The Autumn Statement has reiterated the importance of government departments delivering efficiencies through better management of their assets and liabilities. Indeed, better management of assets and liabilities results in less wastage of resources. These resources can be fed into vital areas of the public sector such as (for example) dealing with the backlog of operations, education, mental health and climate change. 

Politicians’ engagement with this information can be a powerful way to convey simple, clear messages to the public about how resources are used. It can trigger further questioning into the efficiencies of government and contribute to the wider agenda of sustainable public finances.

Dr Elaine Stewart is Lecturer in Accounting at Queen’s University, Belfast. Elaine's research explores central government financial reporting reform to better understand its uses and limitations as well as issues in climate and sustainability reporting for the public sector.

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