The Government Balance Sheet inquiry

The Whole of Government Accounts is world-leading in terms of its scale and coverage of a nation’s public sector finances. However, improvements are needed so that the information it provides is more timely, clear and transparent. The 2014–15 Whole of Government Accounts (WGA) is the largest consolidation of public sector accounts in the world and is a vital tool for Parliament to hold the Treasury and the Government to account. We recognise the improvements that the Treasury has made to the quality of the underlying data and the timeliness of publication since the first WGA, for 2009–10, was published in November 2011. However, delays to the Department for Education’s accounts and limitations in some academies’ data meant that it was still 14 months after the year end that the 2014–15 WGA was published. Although the WGA is vast, the information it provides does not make clear the main reasons for significant year-on-year changes in the Government’s finances. For example, it is not clear why the net public sector pension liability increased by £190 billion in 2014–15 or how much of the annual increase in provisions is due to accounting factors. We are disappointed that the WGA still does not show the public money being spent by region despite public service delivery becoming increasingly devolved. This will become increasingly important as the Government pursues its devolution agenda. Recommendation: HM Treasury needs an enforceable plan to produce WGA more quickly after the year-end, and to make it clearer and more useful to the reader; for example providing a better understanding of the regional distribution of public money and what is causing significant movements on the balance sheet.

The WGA provides the most complete view of the Government’s financial risks, which complements the Government’s preferred statistical measures. However, a lack of alignment between different sources of information on the Government’s financial position hinders understanding of the health of public finances. The WGA’s broad coverage of the Government’s financial risks means it is an important part of the information the Government uses to manage the public finances; there is no more complete record of what the Government owns, owes, spends and receives. Yet HM Treasury uses other sources of information to assess the Government’s economic and fiscal position; notably the Office for Budget Responsibility’s (OBR’s) forecasts in its Fiscal sustainability report and the measures of Current Deficit and Public Sector Net Debt produced by the Office for National Statistics (ONS). The WGA is an ideal opportunity to make clear how these different sources of information about the nation’s finances relate to each other and inform government decisions but it is not yet doing so. The narrower focus of the ONS measures means that ‘net debt’ does not capture the potential impact of liabilities such as public sector pensions or future risks reported in the WGA. For example, in 2014–15, the WGA reported ‘net liabilities’ of £2.1 trillion on an accounting basis while ‘net debt’ (the Government’s main measure of financial resilience, produced by ONS, and cited when setting fiscal policy) stood at £1.5 trillion. Similarly, the Government’s assessments of affordability are informed by the OBR’s projections but these forecasts exclude some significant accounting movements seen in the WGA, such as the impact of the discount rate used to value liabilities in today’s prices. 6 The Government Balance Sheet Recommendation: HM Treasury needs to find a way in the WGA to provide clarity over how the different sources of information used by the Government are employed in managing public finances and the impact that these have on the affordability of key liabilities.

Despite some progress, the Government’s approach to financial planning needs to be more long-term and sophisticated. Despite HM Treasury’s introduction of multi-year budgets, departments still focus on the current financial year and longer-term plans are often lacking in detail. Yet many projects and programmes are long-term and multi-faceted and need more sophisticated management. We are worried that this lack of long-term planning can lead to perverse incentives and poor decisions such as departments spending remaining budget at the year end. We recognise that the Government has made some progress in this area, the OBR’s fiscal sustainability report considers long-term trends and the Major Projects Authority scrutinises long-term projects. However, as HM Treasury itself acknowledges, there is a long way to go before long-term financial planning is factored fully into political decisions around spending reviews and budgets and before its management of the balance sheet is as effective as management of in-year spend. Recommendation: HM Treasury needs to prioritise its plans for strengthening financial management across government. By March 2017, it should set out what steps it will be taking to improve the quality of long-term decision making across government departments.

Significant liabilities on the Government’s balance sheet could crystallise in the event of a significant shock to the economy. Since the first WGA for 2009–10, provisions have increased by 71% and contingent liabilities (possible future obligations for government) have gone up by 85%. The Government is increasingly using its credit rating to issue guarantees and, by the end of March 2015, had committed £18 billion to significant guarantee schemes against a possible exposure of £100 billion. A major economic shock could cause these liabilities to crystallise and the Government’s ability to meet these costs would also depend on economic growth. It is unclear in the WGA what the impact might be if these liabilities were to crystallise but the International Monetary Fund’s analysis shows that it could be equivalent to around 10% of Gross Domestic Product. HM Treasury told us that they expect a negative economic shock due to Brexit and that the potential impact on public finances will be seen in the OBR’s forecast in the autumn and in its first fiscal risk statement in 2017. We understand that an exercise is underway to assess the skills and resources which the Civil Service will need to manage the risks and opportunities that Brexit presents. Recommendation: HM Treasury should analyse its most significant liabilities and guarantees to understand the factors which could cause them to crystallise and, as a priority, develop contingency plans for those most affected by an economic downturn.

The potential cost of the Government’s liability for clinical negligence claims has continued to rise in recent years. Since 2009–10, the WGA has drawn attention to significant liabilities such as clinical negligence. Despite this, the clinical negligence provision has almost doubled to £28 billion and the contingent liability for cases The Government Balance Sheet 7 where the likelihood or amount of payment is less certain increased by 87% to £14 billion over the last 6 years. We are concerned that the Government’s failure to admit liability in a timely way for individual cases could be driving up costs and note HM Treasury’s estimate that some legal costs can be three times more than the compensation received: a problem first highlighted by the Committee of Public Accounts in 2002. HM Treasury told us that the Department of Health had carried out a recent review of the NHS Litigation Authority and begun a consultation into how to reduce the cost of resolving claims. Recommendation: As the Government’s finance ministry, the Treasury needs to exert its authority and work with the Department of Health and the NHS Litigation Authority to get a grip on the clinical negligence liability.

The Government’s pension liability is significant and rising but the year-on- year movements recorded in the WGA are distorted by the discount rate. Since 2009–10 the net liability for public sector pensions has increased by 32%, reaching £1.5 trillion at the end of March 2015. HM Treasury told us that it expects the liability to increase as people are living longer and because of the impact of the discount rate used to value the liability in today’s prices. HM Treasury estimates that around two thirds of the increase in recent years is due to the impact of the accounting discount rate which is based on the return on corporate bonds. Nonetheless, the WGA does not does not show the impact of the discount rate nor explain the other reasons for year-on-year changes in the liability. Because unfunded pensions, which make up most of the liability, will be paid from future tax revenue and therefore depend upon long-term economic growth and trends in GDP, the Treasury instead uses the OBR’s forecasts to assess risks to affordability. Currently, the OBR estimates that the cost of unfunded pensions, expressed as a proportion of GDP, will fall from 2.1% to 1.1% by 2064–65. Recommendation: HM Treasury should provide extra analysis and commentary in the WGA to explain the movement in the liability and to bridge the gap between the presentation in the accounts and the information it uses to assess affordability.

Market volatility could mean the Government having to retain assets for longer than previously intended or risk losing value on the sales. Following sales of its shares in Royal Mail and Eurostar, the Government is planning to sell more assets over the remainder of the Parliament. However, falling share prices mean the Government expects it will take longer to exit from its significant shareholding in the Royal Bank of Scotland (73% ownership) than originally predicted. Given the current volatility in the market, HM Treasury expects to revisit and announce its plan for this and other sales, such as the Bradford & Bingley mortgage book, around the time of the next autumn statement. The face value of the student loan book has more than doubled in size in the last six years to £64 billion and the Government forecasts it could reach £400 billion by 2040. However, it also estimates around 20–25% of the current loan value will not be recovered. We reiterate the point made by the previous Committee in 2014 about the importance of having a robust understanding of the realistic value of the student loan book in advance of any sale. We will expect the Treasury to be clear and transparent about the options available for the disposal of any such assets. 8 The Government Balance Sheet Recommendation: To maximise value for the taxpayer, the Treasury needs to take a long-term view based on a robust understanding of the value of its assets. It must explain clearly the methodology it has used to value its assets when deciding whether, when and how to sell them. The Government Balance Sheet 9 1 Managing the public finances

Although the WGA is a comprehensive record of the use of public resources, it is difficult for a reader of the accounts to evaluate trends in the figures it provides and to assess the Government’s performance.14 For example, we note that it is not clear from the WGA why the public sector pension liability increased by £190 billion in 2014–15.15 Similarly, the WGA provides limited detail to explain how much of the year-on-year movement in 8 C&AG’s Report on Provisions, para 1.14; HM Treasury, Whole of Government Accounts 2014–15 9 C&AG’s Report on Financial assets, paras 2, 5, 10 10 C&AG’s Report on WGA 2014–15, paras 1, 2, 12, 1.38–1.39 11 C&AG’s Report on WGA 2014–15, paras 12, 1.41 12 C&AG’s Report on WGA 2014–15, para 12 & 1.42 13 Qq 138–139 14 C&AG’s Report on WGA 2014–15, para 14 15 Qq 26, 32 The Government Balance Sheet 11 provisions is due to changes in the discount rate used to value them in today’s prices.16 HM Treasury acknowledged there was more work to do to make the information in the WGA more transparent and to explain movements on the balance sheet.17

The previous Committee recommended, in 2015, that HM Treasury develop and implement an action plan and timetable for disclosing expenditure on a national and regional basis in the WGA.18 As public services become increasingly devolved, we asked whether it will be possible, in the WGA or elsewhere, for Parliament to follow the money going to local areas. HM Treasury told us that it already publishes regional spending data each year as part of its Public Expenditure Statistical Analysis.19 However, in a subsequent note, HM Treasury wrote that it shares the Committee’s view that such analysis should be included in the WGA and explained that it is reviewing what this presentation will mean for its data collection and analysis. It has committed to provide an update on the feasibility of including regional data in the 2015–16 WGA and to implement it by March 2017 in line with the previous Committee’s recommendation.20 Using the WGA to manage public finances

There is no more complete record of what the Government owns, owes, spends and receives than the WGA.21 As such, the WGA is a key part of a set of information which can be used to understand the Government’s financial performance and to provide accountability. We questioned HM Treasury about how it uses the WGA to help carry out its role as the Government’s finance ministry. HM Treasury replied that it used WGA data during last year’s spending round to compare performance across departments and to inform discussions with government departments. In particular, HM Treasury said it used the data to review whether departments were making adequate and justifiable provision for future liabilities; how good they were at managing contingent liabilities and debtors; and also their use of assets. HM Treasury also cited other organisations such as the Office for Budget Responsibility (OBR) and the Institute for Fiscal Studies which use the WGA.22

The other main sources of information on the public finances are the National Accounts published by the Office for National Statistics, which provide a statistical view of the Government’s finances, and the OBR’s forecasts of economic performance and public finances.23 HM Treasury uses two measures from the National Accounts to assess the health of the public finances: Current Deficit and Public Sector Net Debt. The nearest equivalent figures reported in the WGA are net expenditure and net liabilities. We asked whether the impact of the WGA was lost, given the Chancellor’s targets for the National Accounts’ measures and the significant emphasis on managing and reporting against Current Deficit and Public Sector Net Debt, rather than against the WGA figures for net expenditure and net liabilities. HM Treasury explained that Net Debt was the main measure it would use to assess the resilience of the public finances, and which informs fiscal 16 C&AG’s Report on Provisions, para 14 17 Qq 32, 90 18 Committee of Public Accounts, Whole of Government Accounts 2012–13, Twenty-sixth report, Session 2014–15, HC 678, 7 January 2015, para 4 19 Qq 90–95 20 HM Treasury (WGA0001) 21 C&AG’s Report on WGA 2014–15, para 1.9 22 Qq 1, 2 23 C&AG’s Report on WGA 2014–15, para 1.3 12 The Government Balance Sheet policy, but highlighted that the value of the WGA was the impact it had on departments’ spending plans and that WGA also draws attention to risks that HM Treasury should be thinking about but which are not reported in the National Accounts. Measures such as net debt are narrower in focus than the WGA and do not capture the impact of liabilities such as public sector pensions or future risks in the WGA which have not yet had an impact on cash.24 For example, in 2014–15 WGA reported net liabilities of £2.1 trillion on an accounting basis while net debt was £1.5 trillion. Net expenditure in 2014–15 WGA was £152 billion while the current deficit reported in the National Accounts was £57 billion.25 Although the WGA sets out the key differences between the National Accounts measures and the financial position in the WGA, it does not explain how the different sources of information come together to inform its policy decisions nor the impact that its actions to manage risks to affordability have on movements in the balance sheet.26 HM Treasury recognised that it needs to improve the information it provides in the WGA.27

We challenged HM Treasury on whether it gave equal importance to managing changes in the balance sheet, such as increases in the nuclear decommissioning provision, which were not cash and would not therefore affect net debt. HM Treasury explained that they had been taking the nuclear decommissioning provision seriously and had discussions with the Nuclear Decommissioning Authority and the Department for Energy and Climate Change about improving the management at the Sellafield site and getting a better understanding of the longer-term costs.28 The Treasury told us that its assessments of affordability are informed by the OBR’s projections in its Fiscal Sustainability Report which highlight risks to the public finances not captured by the net debt measure. From 2017, the OBR will also produce a fiscal risk statement which will provide more analysis.29 However, the OBR forecasts do exclude some significant accounting movements seen in the WGA, such as the impact of the discount rate used to value liabilities in today’s prices. HM Treasury acknowledged that the WGA could be used more across government.30 Improving financial management

We questioned HM Treasury on whether it paid enough attention to financial management across government; noting that HM Treasury did seem to give as much emphasis to developing the more sophisticated approach to financial management that long-term government projects and programmes need, as it did to managing and reporting against measures such as net debt set by the political process. HM Treasury agreed that there is more to do to develop tools to improve the quality of long-term decision making and to consider the impact on long-term financial management and planning when making political decisions around spending reviews and budgets.31 24 Qq 3–4 25 HM Treasury, Whole of Government Accounts 2014–15, Table 2.A and Table 2.B 26 C&AG’s Report on WGA 2014–15, para 1.5; C&AG’s Report on Pensions, para 16 27 Q 15 28 Qq 3, 5–6 29 Q 4; C&AG’s Report on Provisions, paras 16, 3.24 30 Qq 7, 10, 12 31 Qq 98, 99 The Government Balance Sheet 13

We asked whether there was a tension between long-term planning and the way that departments have to manage annual budgets which could lead to poor decisions if departments spend budget remaining at the year end rather than give it back.32 HM Treasury explained that it has built in multi-year budgeting and has improved its forecasting of the year-end position to facilitate earlier conversations with departments about flexibility. The Comptroller and Auditor General noted that departmental plans are light on detail after the first 12 months and there seemed a long way to go before departments were thinking seriously about the longer-term. HM Treasury explained that it would be asking to see a detailed four-year plan for each department to help to instil discipline.33 Nonetheless, we recognise the progress that the Government has made: the OBR’s fiscal sustainability report considers long-term trends and the Major Projects Authority looks at long-term projects which HM Treasury told us had increased transparency and greater scrutiny.34 32 Qq 100–101 33 Qq 102, 104 34 Q 99 14 The Government Balance Sheet 2 Managing the government’s long term risks Provisions and contingent liabilities

Provisions and contingent liabilities represent a significant and increasing potential cash outflow for the Government which it has to manage alongside other spending commitments. The long-term risk profile is increasing. The largest provision is for nuclear decommissioning which stood at £83 billion at the end of 2014–15; it includes the cost of dealing with radioactive waste, nuclear fuels and redundant facilities, most of which is managed by the Nuclear Decommissioning Authority. In 2014–15, the liability for tax dispute claims was £36 billion and made up almost half of total contingent liabilities.35 We asked what impact leaving the EU might have on the contingent liability for tax disputes as many cases arise from differences between our tax laws and EU rules. HM Treasury explained that the impact on existing cases was not clear but thought that HMRC would be looking into it.36

The Government is also increasingly using its credit rating to issue guarantees on schemes which are designed to support key parts of the economy such as housing and to address market failures. In return for the guarantee, the Government receives a fee to compensate it for the risk taken on. By March 2015, the Government had committed £18 billion to its most significant schemes and had a maximum exposure of over £100 billion should all guarantees be taken up.37 We questioned whether the relatively low levels of guarantees issued so far meant that HM Treasury considered them a ‘safe bet’ and if they assessed the policy impact of them. HM Treasury told us that they would apply value for money tests and assess whether the fee level adequately reflected the risks when advising a minister on whether to enter into a guarantee.38 HM Treasury’s Fiscal Risk Group coordinates HM Treasury’s evaluation of combined risks to public finances presented by its portfolio of uncertain and long-term liabilities and emerging financial risks. From 2017, the OBR will produce a fiscal risk statement every two years which will highlight and analyse these risks further.39

Nonetheless, the size of the UK’s financial sector relative to Gross Domestic Product (GDP) and the scale of guarantees offered to financial institutions increase the Government’s exposure to a future financial crisis and subsequent economic downturn. The WGA does not report the likelihood of provisions, contingent liabilities or guarantees crystallising and the potential impact of guarantees is only visible if they give rise to a specific provision or contingent liability. However, analysis by the International Monetary Fund found that shocks relating to the financial sector could cause multiple liabilities to materialise at the same time and, on average, the impact was equivalent to around 10% of GDP.40 HM Treasury told us that it expects the EU referendum result will have a significant economic impact and cited external forecasts that estimate average growth in 2017 will fall from 2% to less than 0.5%. The potential implications for public finances will 35 C&AG’s report on Provisions, paras 4, 1.9a, 1.14 36 Q 136 37 C&AG’s report on Provisions, para 9c, 1.4, 1.20, 3.16 38 Q 89 39 Q 4; C&AG’s report on Provisions, paras 12, 13 40 C&AG’s report on Provisions, paras 9d, 14. 3.22 The Government Balance Sheet 15 be seen in the OBR’s forecast in the autumn.41 At the same time, when questioned, HM Treasury acknowledged that higher economic growth could be possible in the longer-term but explained this would be heavily influenced by the future relationship with the EU.42 When we asked whether the Government had the resources it needs to renegotiate the UK’s relationship with the EU, HM Treasury told us that there was a Civil-Service-wide exercise underway to review the skills, such as trade negotiation, which will be needed.43 Clinical negligence

Since it was first published, the WGA has drawn attention to the potential cost of clinical negligence claims, arising from incidents in the NHS. Clinical negligence claims are managed by the NHS Litigation Authority (NHS LA) on behalf of NHS trusts and NHS foundation trusts. The provision can include the cost of lump sum and regular payments to claimants as well as legal costs of settling cases. HM Treasury told us that the WGA had helped to focus attention on clinical negligence claims in recent years. Yet the clinical negligence provision has almost doubled to £28 billion and the contingent liability (for cases where the likelihood or amount of payment is less certain) has increased by 87% to £14 billion since 2009–10.44

In a note sent to us after the evidence session, the Department of Health told us that the number of new claims had fallen for the first time in 2014–15 but that the long-term liabilities continued to grow year-on-year.45 In 2014–15, 11,497 new claims were made compared to 11,945 in 2013–14.46 In 2014–15, claims relating to childbirth made up just 10% of total claims received but represented 41% of the total value.47 The introduction of a negative long-term discount rate will also increase the value of provisions. The Department explained that more patients being treated and a more transparent and open culture in the NHS had resulted in more incidents being reported and patients making a claim. It also told us that lump sums and annual costs, usually associated with care, on high value claims were rising above inflation and were increasing by around 9% each year currently.48

We asked whether there was a drive to reduce the cost of clinical negligence claims given the impact that rising costs have on the overall NHS budget.49 In its subsequent note, the Department of Health told us that it was committed to freeing up resources that would be better spent on patient care and it is improving training, equipment and professional standards to improve patient care. It said the NHS LA had spent £18 million in 2015–16 on incentive payments to Trusts to help tackle those particular areas of harm that result in claims and the Department is working with NHS England to review the evidence base to understand what interventions are most effective in improving safety and to make sure these are applied consistently. The Department of Health explained that it was also seeking to improve the patient experience to prevent incidents from becoming complaints and then claims. Where incidents occur it said its focus was on ensuring the quality of local investigations carried out and learning from them. The Department 41 Qq 1, 106 42 Qq 57–58 43 Q 49 44 Q 127; C&AG’s report on Provisions, para 1.9b, 9b, 1.14 45 Department of Health (WGA0002) 46 NHS Litigation Authority, Report and Accounts 2014–15, HC 293, July 2015, Figure 18, page 18 47 Department of Health (WGA0002); NHS Litigation Authority, Report and Accounts 2014–15, Figures 21–22, page 20 48 Department of Health (WGA0002) 49 Qq 77–80 16 The Government Balance Sheet also said it had established a new Healthcare Safety Investigations Branch to carry out independent, expert-led investigation into patient safety incidents and to oversee the standard of investigations carried out by Trusts. Where claims are received by the NHS LA, we understand that it will increasingly use mediation and other ways of resolving disputes to settle legitimate claims quickly and fairly without proceeding to litigation.50

We asked about HM Treasury’s oversight of the liability given the scale of clinical negligence liabilities. HM Treasury told us that the WGA was emphasising significant numbers in the public finances and focussing minds on issues such as clinical negligence.51 HM Treasury explained that legal fees on low value claims are around three times as much as the claim for compensation and, as a result, the Government is consulting on fixed legal costs for lower value claims.52 The previous Committee highlighted in 2002 that legal costs were higher than the damage awarded in over 65% of cases up to £50,000.53 However, the Society of Clinical Injury Lawyers has told us that in many cases it is the NHS LA and Trusts that increase costs because they fail to admit liability in a timely way. We asked whether the consultation on legal costs would address this point. HM Treasury said that a recent review of the NHS LA by the Department of Health had recommended looking into this issue.54 The Department of Health stated that it was working closely with the Ministry of Justice and it was including various stakeholders, including the Society of Clinical Injury Lawyers and the Association of Personal Injury Lawyers, in discussions to test its proposals on fixed recoverable costs.55 Public sector pensions

We asked HM Treasury how much attention is being given to the increase in public sector pensions liabilities recorded in WGA. HM Treasury explained that it had made reforms to pensions and had introduced ways to manage the risks and costs to the taxpayer but that the liability would continue to grow; as another year of entitlement was added, people were living longer and because of the accounting discount rate used to value it.56 HM Treasury estimated that around two thirds of the increase in pensions in recent years is due to the impact of the discount rate applied. However, we note that the WGA does not explain how much of the increase in the liability is due to changes in the discount rate as opposed to other changes in assumptions.57 In line with generally accepted financial reporting practice, the discount rate used to adjust the pension liability in the WGA to today’s prices is based on the rate of return on corporate bonds, which can be volatile. The discount rate is also consistent with that used for private sector schemes, which aids comparability.58 Nonetheless, unfunded pensions which make up the majority of the pension liability are not met from returns on a pool of assets but from future tax revenues, and therefore affordability depends upon long-term economic growth. As a result, the discount rate may not reflect the unusual nature of unfunded pensions.59 50 Department of Health (WGA0002) 51 Qq 126–127 52 Q 80 53 Committee of Public Accounts, Handling Clinical Negligence Claims in England, HC 280, Thirty-seventh Report, Session 2001–2002, 13 June 2002, para 34 54 Q 124 55 Department of Health (WGA0002) 56 Qq 9, 10, 21 57 Qq 21, 26; C&AG’s Report on Pensions, para 2.8 58 C&AG’s Report on Pensions, para 20 59 Q 16; C&AG’s Report on Pensions, para 20 The Government Balance Sheet 17

There is a limit to the level of pensions that the Government can reasonably finance annually as a proportion of GDP without having to reduce spending in other areas, increase income through taxation, or increase borrowing.60 The key issues for affordability are the size of the public sector workforce, accrual rates and life expectancy.61 HM Treasury told us that unfunded pension payments are ‘backed by our ability to tax’ and explained that, because its ability to pay pensions in the future depends on economic growth, it uses the OBR’s cash flow projections to assess future affordability.62 The OBR’s latest forecasts estimate that spending on unfunded public sector pensions, expressed as a proportion of GDP, will fall from 2.1% to 1.1% by 2064–65 because there will be fewer public sector workers and because of the ongoing impact of the Government’s pension reforms.63 However, the forecasts assume the economy will grow and if it does not grow as expected, it could have a significant impact on the Government’s ability to pay pensions as they fall due. It is also not clear from the WGA what impact the Government’s management of these risks is having on the liability.64 Asset sales

During the financial crisis, the Government acquired 84% ownership of the Royal Bank of Scotland and 43% of Lloyds Banking Group Plc to help stabilise the British banking system by protecting customer deposits and allowing the banks to maintain lending to businesses and homeowners. The Government planned to return the banks to private ownership in the future.65 Following share sales between 2013 and 2015, the Government has reduced its stake in Lloyds to less than 10%. In 2015 the Government sold 630 million shares in RBS and announced plans to sell at least three-quarters of its stake over the next parliament. The Government now owns 73% of RBS.66 We asked whether the recent fall in share prices meant the Government would be the owner of RBS for longer than originally predicted and if it would be possible to recoup the original investment for the taxpayer. HM Treasury explained that the scale of the shareholding already meant it would take a while to exit from RBS. While it would aim to get the most value for the taxpayer, HM Treasury told us that a sale was not imminent given the current market volatility and the considerably lower share price.67

In the main, the current process for selling assets does not require parliamentary input to the Government’s decisions to sell its investments.68 We questioned whether HM Treasury would be more public about the options for selling assets such as RBS. HM Treasury said that it would be revisiting statements relating to bank sales, including the Bradford & Bingley mortgage book it took on in 2008, which it had made in the previous Budget and would announce its plans in the autumn statement.69 60 C&AG’s Report on Pensions, para 15 61 Qq 17, 26 62 Qq 12, 28; C&AG’s Report on Pensions, para 16 63 C&AG’s Report on Pensions, para 12 & Figure 5 64 Q 26; C&AG’s Report on Pensions, paras 12, 16 65 C&AG’s Report on Financial assets, para 3.5, 3.6 66 C&AG’s Report on Financial assets, paras 3.10, 3.11, Figure 16 67 Qq 109, 111–112 68 C&AG’s Report on Financial assets, para 19 69 Q 116 18 The Government Balance Sheet

The previous Committee stressed in its 2014 report on Student Loans the importance of having a robust understanding of the realistic value of the student loan book; the long-term cost to the taxpayer of any early sale; and the expected level of competition between bidders and what they might pay for the loan book.70 The face value of the English student loan book, which makes up most of the student loan figure reported in WGA, has more than doubled to £64 billion between 2009–10 and 2014–15. Increases in the maximum loan available to students, the introduction of loans for postgraduates and an extension to the period over which the loans can be repaid all mean that the Government is currently forecasting that the face value of outstanding debt could reach around £400 billion by 2040. The loans are available to all individuals meeting the eligibility criteria and, although repayment is tied to potential future earnings, there is a risk is that people do not earn enough to repay them in full.71 We asked HM Treasury what assessment it had made of the level of future loans which will not be repaid because students cannot find suitable employment, particularly given the current economic uncertainty. HM Treasury said that it was sure those managing the student loan book would be examining the impact of a downturn in the economy. It told us it forecasts the future profile for student loans as part of the estimates process and this analysis feeds into the autumn statement as well as the OBR’s fiscal sustainability report. HM Treasury explained that the latest estimates were that 20–25% of the current loan value would not be recovered.72 70 Committee of Public Accounts, Student Loan repayments, HC 886, Forty-fourth Report, Session 2013–14, 14 February 2014, para 3 71 C&AG’s Report on Financial assets, para 13 72 Qq 119, 120, 122 The Government Balance Sheet 19