Select committee inquiry
Whole of Government accounts 2012-13
Closed
What the inquiry looked at
“The Whole of Government Accounts (WGA) is a single set of accounts consolidating the financial activities of the UK public sector. The WGA for 2012-13 is the fourth such set of audited accounts to be published by HM Treasury. The WGA consolidates the financial activities of around 3,800 organisations from across the public sector into a single set of audited accounts showing the overall public sector financial position. It is the largest consolidation of public sector accounts in the world and includes both central and local government bodies as well as public corporations such as the Bank of England. The latest WGA will allow the Committee the opportunity to examine the latest financial position of the UK Government, the implementation of cost reduction measures, and progress in improving the quality and timeliness of the WGA. Further information HM Treasury: Whole of Government Accounts 2012-13 (PDF, 2.72MB)”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
In the committee's words, from the summary of 26th Report - Whole of Government Accounts 2012-13 ↗
We welcome the continuing progress HM Treasury is making in producing the Whole of Government Accounts (WGA). The 2012-13 WGA was published five weeks earlier than last year and the Treasury now has plans in place to produce the accounts even earlier in future years. The Treasury also aims to allow the Comptroller and Auditor General to remove most of his qualifications on the audit opinion. This is the fourth WGA to be published and it remains the most comprehensive picture of the government’s income, expenditures, assets and liabilities that is available.
Parliament lacks real visibility over the government’s delivery of its deficit reduction measures under the current Spending Review. The government has currently delivered only half of its planned measures to balance public sector income and expenditure (fiscal consolidation measures). The experience in the delivery of consolidation measures to date, where for example the planned increases in tax revenues have not been realised, also show that the government will face a significant challenge in delivering the next phase of the consolidation. In assessing the government’s performance in its management of public finances, the WGA is now an essential tool in supporting Parliamentary accountability.
The Treasury has been slow in ensuring that all parts of the public sector comply with the government’s expectations on pay restraint, particularly in the setting the pay of senior staff. We welcome the steps the Treasury has taken to ensure that “off payroll”
arrangements within central government are made more transparent and that the Treasury is sanctioning government bodies when they fail to comply with the guidance. However, the Treasury now needs to do more in tackling “off payroll” arrangements within the wider public sector and making these arrangements equally transparent as those within central government.
What the government said
The government responded on 27 March 2015.
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 19 September 2014 to 27 March 2015.
- Oral evidence 22 Oct 2014
- Report 7 Jan 2015
- Government response 27 Mar 2015
What it recommended 0 recommendations · 19 conclusions
1Parliament lacks visibility over the impact of the Government’s fiscal consolidation measures.
Concluded (the committee's words)
Parliament lacks visibility over the impact of the Government’s fiscal consolidation measures. The Treasury plans that, by the end of the current Parliament, some £126 billion of consolidation measures will be achieved from a combination of spending cuts (some £100 billion) and increased tax revenues (around £26 billion). Officials explained that tax revenues were not increasing as expected and, although the spending cuts were being delivered, they were less clear where the savings had been made. The Treasury told us that the planned savings over the spending review period included some £20 billion from welfare savings, £20 billion from reducing the public sector workforce, £6 billion from pay restraint, and £5 billion from increasing pension contributions from public sector workers. The make-up of the remaining savings was not clear. Recommendation: The WGA is a key means by which Parliament holds the Government to account for its management of public finances, including its progress in delivering fiscal consolidation measures. The Performance Report part of the WGA is now the most appropriate place to set out the impact of the government’s fiscal consolidation measures on Government finances so that trends in performance can be assessed.
2The Government has made progress in reducing the deficit but the challenges in meeting current...
Concluded (the committee's words)
The Government has made progress in reducing the deficit but the challenges in meeting current and future targets for eliminating the deficit look very challenging. The Treasury estimates that it will have reduced the deficit in the public finances from 11% of Gross Domestic Product in 2010 to 5.5% by the end of the current Parliament. The challenge in delivering further fiscal consolidation measures during the next Parliament should not be underestimated. Under present policies some £250 billion out of over £700 billion public expenditure is protected from spending cuts and tax receipts continue to be well below forecasts. This leaves the challenge of identifying and delivering further expenditure cuts as very testing. As well as the uncertainty around the levels of tax revenues, the challenge of delivering further savings in public sector spending is likely to be greater than that experienced so far given the large areas of expenditure that are protected. The Government also has existing commitments to meet long term obligations such as the costs of nuclear decommissioning, where costs continue to increase at a massive rate, and the ability to recover student loans where estimates of write-offs also continue to grow fast. 5 Long-term fiscal consolidation will not be achieved without better management of the risks and uncertainties in the public sector balance sheet. The Treasury has acknowledged that its Spending Teams need to better understand the impact of current spending decisions on future generations. Recommendations: • The Treasury should use the WGA to set out the risks and uncertainties it faces in meeting fiscal consolidation and how these are being managed. • The WGA should also set out how Spending Teams have used WGA information to influence the next spending round and beyond.
3The Treasury does not currently assess the level of fraud and error across the whole...
Concluded (the committee's words)
The Treasury does not currently assess the level of fraud and error across the whole of Government. They know that in 2013-14 fraud and error on tax credits amounted to £2 billion and fraud and error on benefits and pensions amounted to £3.3 billion. Recommendation: As we recommended last year, the Treasury should: • collect information across the whole of Government so that it can disclose the totality of monies lost through fraud and error. • develop a consistent and coherent policy across Government for tackling fraud and error with a view to reducing the losses concerned.
4The WGA does not provide Parliament with information on national or regional spending.
Concluded (the committee's words)
The WGA does not provide Parliament with information on national or regional spending. The WGA currently provides an analysis of expenditure between central government, local government and public corporations. We believe that an analysis of national and regional spending would demonstrate to Parliament the effective allocation and use of resources on a national and regional basis. We welcome the Treasury’s agreement to include this disclosure in future. Recommendation: The Treasury should develop and implement an action plan and timetable for the future disclosure of expenditure on a national and regional basis.
5The Treasury has not demonstrated sufficient oversight in ensuring that all parts of the public...
Concluded (the committee's words)
The Treasury has not demonstrated sufficient oversight in ensuring that all parts of the public sector comply with the government’s expectations on pay restraint. Pay costs form a significant part of public sector spending and a lack of control over pay could negate savings made elsewhere. The Treasury sets the framework for public sector pay but has been slow to exert its direct control over decisions taken by the wider public sector when setting remuneration packages. For example, although the Treasury took steps to eliminate automatic annual increments as part of its own pay awards system, it has yet to see this achieved throughout the rest of the public sector. The Treasury has also been slow in identifying and addressing seemingly excessive pay awards for some roles in the education sector, such as University Vice Chancellors and ‘Super-Heads’ and has only recently started to collate information in areas such as the Academy sector. Given this track record, we are sceptical as to whether government are taking this matter seriously and are concerned that 6 messages around the need for pay restraint for the public sector are undermined by remuneration packages offered to more senior public servants. Recommendations: The Treasury should: • set clear expectations of appropriate senior level pay, and pay restraint more generally, for all publically funded bodies to apply; • publish, a clear picture of pay trends across the whole of the public sector within the WGA; and • enhance accountability for the decisions made by public bodies by expanding the scope of the WGA Remuneration Report to include senior banded salary details for other WGA sectors as well as those for the civil service.
6Off payroll arrangements across central government still occur too often and have yet to be...
Concluded (the committee's words)
Off payroll arrangements across central government still occur too often and have yet to be tackled throughout the wider public sector. We have concluded previously that better procedures were needed to manage ‘off-payroll’ arrangements, where individuals organise their pay to be remitted to a limited company to avoid income tax, across the public sector. Guidance from the Treasury and Cabinet Office now requires these arrangements to be reported in central government accounts and we welcome this improved transparency. However, we are concerned that there are no similar arrangements in the local authority and public corporations sectors. We also welcome the Treasury’s stance in sanctioning central government bodies that have failed to follow guidance, but are disappointed where Treasury oversight has failed to ensure some departments are addressing problems effectively. For example, in 2013-14, there were some 2,214 new ‘off-payroll’ arrangements within central government and, in 27% of cases, departments did not insert clauses into contracts allowing them to seek assurances on individuals’ tax obligations. Recommendations: The Treasury should: • continue to work with the Local Government Association to set clear expectations on the use of such arrangements across the local authority sector; • develop appropriate frameworks for disclosing off-payroll arrangements within local government and public corporations; and • in light of applying the existing guidance over the past two years within central government, consider lessons learnt and where this guidance can be strengthened so that all departments are consistent in their application of the guidance. 7 1 Managing the public finances
7The WGA also highlights that there are other areas which represent considerable uncertainty for the...
Concluded (the committee's words)
The WGA also highlights that there are other areas which represent considerable uncertainty for the management of the public finances, such as the reduction in the value of student loans because of higher write-offs and the increase in liabilities in respect of nuclear decommissioning. The Treasury explained that the reduction in the value of student loans was linked to lower than expected wage growth leading to a delay in the point that loans would start to be repaid. The Treasury noted that the increase in the nuclear decommissioning provision was due to the uncertainty surrounding the future decommissioning costs but admitted that it was hard to predict when this number would stabilise.12
8We asked the Treasury how the WGA had been used to influence decisions in the...
Concluded (the committee's words)
We asked the Treasury how the WGA had been used to influence decisions in the current spending round. The Treasury told us that, during the 2013 spending round, it had looked at the WGA balance sheet position to help inform their plans for the sale of assets. However, the Treasury acknowledged that there were more opportunities for its Spending Teams to use the WGA to inform policy and that it was increasing accountancy skills in policy teams to understand published accounts better.13 7 Qq 23, 34- 35 8 Q 9 9 Q 12 10 Q 39 11 Q 44 12 Qq 104, 107 13 Qq 115-116 9 Additional information for Parliament
9The WGA discloses net income and expenditure between central government, local government and public corporations.14...
Concluded (the committee's words)
The WGA discloses net income and expenditure between central government, local government and public corporations.14 We asked the Treasury about its plans to provide further information on a regional and national level. The Treasury explained that its current focus had been on the timeliness and the qualifications on the WGA but that the inclusion of information on a national and regional basis within the WGA was part of its long term plans.15
10We questioned whether additional regional disclosure would help the Treasury in identifying efficiencies at a...
Concluded (the committee's words)
We questioned whether additional regional disclosure would help the Treasury in identifying efficiencies at a regional level. The Treasury told us that it would consider this as part of their forward work programme for the WGA. The Treasury also told us that it was working closely with the Local Government Association on further collaboration on public services.16 On the subject of national spending we also asked the Treasury whether the proposed tax raising powers for the Scottish Government would impact upon the public expenditure limits for the United Kingdom and whether any devolved taxes raised in Scotland would lead to England having to reduce expenditure totals to compensate. The Treasury told us that setting the framework for the new devolution settlement was of critical importance in reaching a new sustainable settlement and that where an individual component of the United Kingdom was allowed to spend more, and the overall spending limit was unchanged, then reductions would have to be made elsewhere.17
11We have previously recommended that the Treasury disclose the levels of losses and fraud and...
Concluded (the committee's words)
We have previously recommended that the Treasury disclose the levels of losses and fraud and error across the whole of government within the WGA.18 The Treasury accepted this recommendation and plan to implement it in July 2015 for the 2014-15 WGA. We asked but the Treasury was unable to provide a total figure of fraud and error across government. However, the Treasury did provide estimated figures for HMRC and the Department for Work & Pensions and told us that while it did not currently have comparable data across all departments they had written to departments with guidance and hoped to have a more informed position in the next few months.19 The Treasury subsequently wrote to us setting out that the estimated level of fraud and error in 2013-14 was £2.0 billion for tax credits administered by HMRC, £3.3 billion for benefits and pensions administered by the Department for Work and Pensions and that there was some £42 million of fraud and error relating to funds administered by other government departments.20 14 HM Treasury, The Whole of Government Accounts 2012-13 P28, June 2014 15 Qq 58, 60 16 Q 60 17 Qq 119-120 18 The Committee of Public Accounts, Whole of Government Accounts 2011-12, HC 667, December 2013 19 Qq 45 -52 20 Letter from Sharon White 13th November 2014 10 2 Managing public sector pay Public sector pay control
12Pay costs form a significant part of public sector spending and a lack of control...
Concluded (the committee's words)
Pay costs form a significant part of public sector spending and a lack of control over pay could negate savings made elsewhere. We asked the Treasury what it saw as the next step in managing staff costs. The Treasury told us that the Government’s main concern would be to minimise the risk to the taxpayer of increased costs in the future and that it was critical for the Treasury to be able to identify long term trends or particular issues so as to inform government decisions. The Treasury noted as an example that large parts of the public sector still have annual pay increments even though the Treasury had ceased this practice some 20 years ago. The Treasury also noted that moving from an annual pay increment system could lead to additional upfront costs to buy staff out of their contracted arrangements, but the Treasury review new arrangements to ensure that they are beneficial to the taxpayer. The Treasury informed us that it is government policy to remove the annual pay increment across the civil service but that progress still had to be made in other areas of the public sector, particularly in the health service.21
13The Treasury allows public sector entities to manage their own financial affairs with the autonomy...
Concluded (the committee's words)
The Treasury allows public sector entities to manage their own financial affairs with the autonomy to make decisions such as the level of pay awards.22 However, this policy leaves the Government exposed to the risk that these bodies may make decisions which go against wider policies on pay restraint and the proper use of public monies. We were concerned that not all bodies are subject to the same accountability and transparency rules and the need for pay restraint within the public sector is undermined when it comes to packages offered to more senior public servants.23
14We asked the Treasury what they were doing in respect of controlling salaries in the...
Concluded (the committee's words)
We asked the Treasury what they were doing in respect of controlling salaries in the education sector, especially around Academies and ‘Super-Heads’ and who was accountable for how much they were paid. The Treasury told us that they take a close interest if it thinks that there are sector anomalies and that the governing body of the Academy is accountable for pay. The Treasury noted that there was now more discretion on pay in this sector and that it was trying to collect data to assess the degree to which individual Academies were taking account of the freedoms granted to them. The Treasury also told us that should it identify pay anomalies it would take this issue up with the Department for Education.24
15We also challenged the Treasury over the absence of any control and transparency arrangements in...
Concluded (the committee's words)
We also challenged the Treasury over the absence of any control and transparency arrangements in respect to senior university remuneration, for example at the vice chancellor level. Despite universities being classed as outside the public sector, they receive a substantial amount of funding directly, or indirectly, from the public sector. The Treasury told us that where bodies are outside the public sector it is difficult to apply 21 Qq 62, 77 22 Q 78 23 Qq 67, 81 24 Qq 84-87 11 controls and that it was focussing on those areas where it had direct influence first, but that it would consider what could be done in the university sector.25 “Off payroll” arrangements
16We have previously concluded that the Treasury needed to manage ‘off-payroll’ arrangements (to pay remuneration...
Concluded (the committee's words)
We have previously concluded that the Treasury needed to manage ‘off-payroll’ arrangements (to pay remuneration into limited companies to avoid paying income tax) across the public sector more effectively.26 Since then, the Treasury and Cabinet Office have required central government departments to report such arrangements in their Departmental Accounts.
17The 2012-13 WGA’s Remuneration Report discloses a fall in the number of central government civil...
Concluded (the committee's words)
The 2012-13 WGA’s Remuneration Report discloses a fall in the number of central government civil servants paid £100,000 or more from 861 at March 2012 to 807 by March 2013.27 We asked the Treasury to what extent Departments were still employing people off payroll. The Treasury told us that it takes a great interest in this subject and that it requires departments to report their arrangements in their annual reports. The Treasury also told us that where it has identified departments that have clearly breached the rules it fines them. The Treasury quoted the example of the Land Registry which had been fined £1 million. The Treasury also told us that it would be issuing advice to Ministers on the appropriate response to a rules breach.28
18We also asked what constituted a rules breach and how the Treasury determined the level...
Concluded (the committee's words)
We also asked what constituted a rules breach and how the Treasury determined the level of fine. The Treasury advised us that the definition of a rules breach was not following the guidance and not having a good reason not to do so. The level of the fine was a judgement based on the seriousness of the breach but was based on the cost of the salary so that bodies breaching the rules would incur a fine equivalent to the cost of the salary incurred. The Treasury also informed us that it also terminated contracts where a breach was found and that it provided details of such cases to HM Revenue & Customs.29
19The National Audit Office found that central government departments had declared 2,214 instances of off-payroll...
Concluded (the committee's words)
The National Audit Office found that central government departments had declared 2,214 instances of off-payroll arrangements for new joiners during 2013-14 and that, in 27% of cases, employment contracts did not require individuals to provide assurances that they were paying the appropriate income tax and national assurance due under income tax rules. Within the Department for Work & Pensions only 15% of starters which had off- payroll terms were required to provide the Department with assurances over the tax and national assurance obligations. The Treasury explained that it was in the process of reviewing the contracts for 2013-14 and that where examples were found that do not have a clear explanation, the contracts would be terminated and fines imposed.30 25 Qq 88-91 26 The Committee of Public Accounts, Off-Payroll Arrangements in the Public Sector, HC 532, October 2012 27 HM Treasury, The Whole of Government Accounts 2012-13 P47, June 2014 28 Q 67 29 Qq 69-70 30 Qq 72, 73 12
Evidence
Oral evidence sessions 1
- 22 Oct 2014No witnesses recordedparliament.uk ↗