Source · Select Committees · Public Accounts Committee
Recommendation 13
13
With the UK’s debt as a proportion of GDP above 100%, any increases in interest...
Conclusion
With the UK’s debt as a proportion of GDP above 100%, any increases in interest rates would have a significant impact on the economy and government spending. When asked whether it was modelling for interest rate increases, the Treasury confirmed that it did, but deferred to the OBR as the prime place for this information, noting that the 16 Public Accounts Committee, Twenty-Eighth Report of Session 2019–21, The Nuclear Decommissioning Authority’s management of the Magnox contract, HC 653 November 2020 17 Q 77 18 Q 79 19 Q 81 20 WGA 2018–19, p 41 21 Qq 75–76 22 WGA 2018–19, para 1.12, p 3 23 National Audit Office, Evaluating the government balance sheet: borrowing, HC 526, November 2017 24 Q 16 Whole of Government Accounts 2018–19 11 OBR’s fiscal risk report specifically identifies rising interest as one of the big risks for the public finances. When pushed to expand on the impact of rising interest rates on the public finances, the Treasury outlined in general terms how interest rate rises would result in bigger debt interest costs and less for other public spending.25 When asked whether it had conducted any analysis or forecasting on further significant increases in debt to GDP ratios, the Treasury deferred to the OBR.26 The Treasury also confirmed that it had not conducted any analysis on how the increased debt to GDP ratio may impact the UK’s credit rating.27
Government Response
Acknowledged
HM Government
Acknowledged
1.1 The government agrees with the Committee’s recommendation. Target implementation date: Autumn 2021 1.2 The government is committed to transparency on fiscal risks and welcomes independent scrutiny of risk exposure. Every year the Office for Budget Responsibility (OBR) publishes either a Fiscal Risks Report or a Fiscal Sustainability Report, providing comprehensive surveys of near-term fiscal risks and longer-term pressures on the public finances. Every other year the government publishes its response to the Fiscal Risks Report, setting out the action the government is taking to manage the fiscal risks identified. The OBR will publish its third Fiscal Risks Report in 2021. The International Monetary Fund (IMF) and the Organisation for Economic Cooperation and Development (OECD) have recognised the OBR Fiscal Risks Report as one of the most comprehensive of its kind. The OBR is the UK’s official economic forecaster and produces an 16 Economic and Fiscal Outlook twice a year. The OBR’s publications are the best sources for official forward- looking assessments of the fiscal position. 1.3 The Whole of Government Accounts (WGA) financial statements are, like any other audited set of accounts, a record of past financial performance, and give an assessment of the balance sheet at a defined point in time in the past. They do not include forward-looking assessments of the fiscal position or estimates of the government’s exposure to fiscal risk: applying the relevant accounting standards to government accounts does not generate that information. But the accompanying performance report gives us the opportunity to include a broader commentary, beyond the scope of the audited accounts, including summary information on the forward-looking position, drawing on information published by the OBR. In the WGA 2019- 20, the performance report will set out additional forward-looking information and commentary on the Treasury’s overall approach to managing the financial position and fiscal risk. It will include more information on the principal risks and uncertainties facing the economy and their potential implications for the WGA in future years. And it will include greater information on the profile of future cash flows from existing WGA liabilities and more information on expenditure on COVID-19, based on available published data sources including departmental data.