Thank you for your public sector community membership in 2025. We look forward to supporting you with many more insights in 2026.
We would like to thank you for all your support in 2025 and welcome you back to community membership in 2026.
Our public sector community continued to grow in 2025 and now stands at over 15,000 members. We value your engagement and trust you have found being a member worthwhile.
Last year was characterised by many twists and turns and was a bumpy ride both domestically and globally. And whilst the global economy has shown remarkable resilience, ICAEW’s Business Confidence Monitor points to a more uncertain year ahead here in the UK with businesses especially concerned about tax and regulatory burdens.
Research published in 2025 showed how trust in politics and democratic institutions has declined significantly in recent decades, while anaemic economic growth, stubborn inflation (although predicted to fall this year), and public services under severe pressure made 2025 a less than positive experience for many. The government found itself ‘adjusting’ several of its key policies and struggling to deliver the changes it has promised.
We welcomed the Spending Review 2025 and the industry and infrastructure strategies that were published in June 2025, but the Autumn Budget was unexpectedly the main fiscal event of the year, later than many had anticipated on 26 November, and with a lot more tax.
The run up to Budget 2025 was marked by a series of leaks and briefings about potential tax rises, many of which were sent aloft (hence the expression ‘kite flying’) to gauge public and market reaction before committing. This caused considerable uncertainty and while some of the early predictions did not materialise, the damage to confidence of both businesses and individuals was real and lasting.
The public sector team was heavily involved in ICAEW’s submission to the Autumn Budget, which called for government to reduce uncertainty, make doing business easier, and less costly. We again recommended meaningful action to address the poor state of the public finances, including the need for a long-term fiscal strategy and a new approach to phase in tax rises over time.
We further developed our partnership with CIPFA, joining forces on a number of important topics such as raising concerns about the plans to remove funding for Level 7 apprenticeships, issuing a joint consultation response on climate reporting in the public sector, and hosting a joint roundtable discussion discussing the capacity and capability of public sector finance professionals at last year’s Government Finance Function conference.
Here are some of our key highlights from 2025.
Local government financial reporting and audit
2025 saw the introduction of the English Devolution and Community Empowerment Bill into the House of Commons. The Bill will reform the local audit regime through the establishment of the Local Audit Office (LAO), with the LAO overseeing the local audit system by commissioning and appointing auditors to local bodies, issuing the Code of Audit Practice for which local auditors must adhere to, and for oversight of local audit quality.
ICAEW has worked closely with the government, CIPFA and others to support the Bill’s introduction, a key step in addressing a local audit crisis that saw a backlog of overdue audited accounts peak at 918 audits in September 2023.
The second of a series of backstop dates mandating the publication of local government audited financial statements came in February 2025, with 90% of local bodies completing their audits by the deadline. Significant issues remain however, with a large number of local authorities receiving disclaimed audit opinions, and some local authorities still being unable to publish audited accounts.
Work on wider financial reporting reforms are underway to address more fundamental issues with local authority financial statements, which are overly complex and difficult to understand for users. CIPFA’s Better Reporting Group has begun to tackle these issues first hand, focusing on ensuring local authority financial statements are fit for purpose through a series of working groups. CIPFA LASAAC, the accounting standard setter for local authorities, is planning to consult on a significant number of financial reporting reforms in 2026, so watch this space.
Public finances in 2025
The UK’s public finances are in a fragile position following weak economic growth since the financial crisis, much higher pensions, health and social care spending from more people living longer, the end of the peace dividend, and large amounts of borrowing to result in public debt close to 100% of GDP. We continue to advocate for a long-term fiscal strategy to put the public finances on a sustainable path and our activities included convening a roundtable in March 2025 at which we joined with the Chair and Deputy Chair of the Public Accounts Committee to bring leading think tanks and others together to talk about how the UK can tackle its many fiscal challenges.
The Spending Review 2025 dominated the first half of the financial year and we were pleased that the government addressed several of the recommendations we made in our response to their consultation at the start of 2025. This included calling for clarity on the government’s wider strategic objectives, a digital first approach to public services, upfront investment to deliver sustainable efficiency improvements, core capital investment programmes to provide funding certainty, and prevention as a genuine priority amongst others. It was pleasing to see the Chief Secretary to the Prime Minister at the start of 2026 concur with our recommendation to increase delegations of authority to encourage innovation and ownership of outcomes and speed up decision making.
We were closely involved in the development of ICAEW’s Autumn Budget 2025 submission and to ICAEW’s Autumn Budget coverage, including an in-depth Fiscal Insight to put it all into context.
We continued to publish our popular charts of the week on economic and public finance related topics throughout 2025. Some of our favourites included the path of US federal government debt, the end of year capital rush, the end of the first quarter (century), international government gold holdings, NATO defence spending, global GDP, the balance of payments, GDP revisions, the impact of the employer national insurance on payrolls, households in England, Budget 2025 debt blues, and (to round out the year) inflation.
We also published monthly commentaries of the public finances (most recently for November 2025) and updated our economy explainers on the deficit, public finances and spending, public debt, and the public balance sheet. And our external advisor on public finances, Martin Wheatcroft, released the 2025/26 edition of his book Simply UK Government Finances, published in association with ICAEW.
Public Sector Annual Conference 2025 - turning adversity into opportunity
Our flagship public sector conference in December focused on crisis management, recovery, and resilience. We heard from several influential speakers about their experiences, providing us with a unique insight into how past events and decisions should inform the future of running of the public sector. Let’s not keep repeating the same mistakes!
Please take a look at our on-demand recordings if you were not able to attend on the day.
Sustainability and climate reporting
In the UK, central government is following the private sector in adopting the Task Force on Climate-related Disclosures (TCFD) framework, although there are no plans to jump onto IFRS S2 any time soon.
At the 31 March 2026 year end, central government entities will need to report against all TCFD pillars. This will include, for the first time, the strategy pillar (phase 3) in addition to the existing governance, risk management, and targets and metrics pillars. The strategy pillar requires entities to disclose actual and potential impacts of climate related risks and opportunities.
Climate reporting will create new challenges including new data requirements, new skill sets, and additional risk evaluations, including forward-looking scenario analysis under the strategy pillar. We hosted a workshop on TCFD adoption at the beginning of 2025 with HM Treasury and the Government Actuary’s Department. Please let us know if further support in this area would be of interest to you using the email address provided below.
Internationally, the International Public Sector Accounting Standards Board (IPSASB) is forging ahead with its sustainability agenda, reaching a significant milestone with the approval in December 2025 of IPSASB SRS 1, Climate-related Disclosures to align with IFRS S2. IPSASB said: “This achievement supports the expanding information needs of users of general-purpose financial reports and marks a major step forward in public sector reporting, establishing disclosure requirements for climate-related risks and opportunities for public sector entities”.
Consultation responses and representations
One of the ways in which the ICAEW public sector team seeks to influence developments in the public interest is by responding to selected government, parliamentary and other consultations. In 2025, these included:
ICAEW public sector team developments
Alison Ring OBE, ICAEW Director of Taxation and Public Sector, retired in August 2025 following more than five and half years with ICAEW and over 25 years with HMRC before that. She was a tour de force who made things happen. We would like to place on record our appreciation for her huge contribution to advancing the work of the accounting profession working for and with public sector.
In March 2025, Henning Diederichs, ICAEW Senior Technical Manager, Public Sector Reporting, joined the UK Government Financial Reporting Advisory Board (FRAB), the accounting standard setter for central government in the UK. He has been focusing on the UK’s adoption of sustainability reporting standards for the public sector and the adoption of IFRS 18.
Jack Bower, ICAEW Technical Manager, Public Sector Audit & Assurance, joined HM Treasury’s User and Preparer Advisory Group in 2025 and continues to lead on local government public financial management, financial reporting and auditing. He is a member of CIPFA’s Better Reporting Group and several of its working groups, as well as being a member of the Local Government Pension Scheme Advisory Board’s Compliance and Reporting Committee.
A look ahead - what 2026 may have to offer
Developments in financial reporting will be a key theme for 2026 as FRAB and CIPFA LASAAC examine how to implement IFRS 18 on presentation and disclosures in central and local government and CIPFA’s Better Reporting Group starts to make recommendations on how to redesign local authority financial statements.
On the audit side, we will continue working with the government, our partner CIPFA, audit firms, and others on the resolution of the audit backlog and the establishment of the Local Audit Office.
The public finances will remain a key area of concern in 2026, with a challenging economic outlook, growth projected at not much above 1%, and business confidence downbeat following the tax rises in the last two Budgets. The government is already starting to feel the pressure for tax concessions (such as from the pub industry on business rates) and for more public spending (for example on defence) that is likely to eat into its fiscal headroom, so the prospect of further tax rises in 2026 can’t be fully ruled out.
The government is also embarking on significant restructuring and digitisation programmes that should see a significant reduction in civil service headcount. All the while, we will continue to press for the development of a long-term fiscal strategy and for better public sector financial management.
ICAEW’s public sector team will also be on hand in 2026 to support our community through these early years of adoption of public sector sustainability reporting standards. We will continue to engage with HM Treasury, IPSASB and other key stakeholders and we will share the latest updates with you throughout 2026. And we will take a look at the practical steps local authorities can take in reporting on climate given the capacity constraints currently being experienced by their finance teams.
Finally, we will also keep you up to date on the progress of our merger with CIPFA following approval of the next stage in the process by ICAEW Council in December 2025.
A thriving public sector community
As ever, it would be great to hear from you if you have any thoughts about how we can promote better accounting, reporting and auditing in the public sector in 2026 and better support the profession working in and with the public sector.
It leaves me now to say many thanks again for supporting our public sector community. We hope you find our content helpful and supportive. If you have any topics that you think we should cover, please contact us at: publicsector@icaew.com.
With best wishes,
Henning Diederichs FCA
