Source · Select Committees · Public Accounts Committee
Recommendation 5
5
Accepted
Include additional WGA information on undiscounted liabilities, trend analysis, and actuarial assumptions
Conclusion
The impact of discount rate changes is obscuring the ability to identify meaningful trends in large public sector financial liabilities within the WGA. The discount rate is the rate of return used to discount future cash flows when calculating a liability’s present value. The WGA includes several large liabilities which are heavily impacted by changes in the discount rate. For example, the provision in WGA for future decommissioning of nuclear facilities decreased by £126.2 billion from £273.1 billion in 2021–22 to £146.9 billion in 2022–23, with the discount rate decreasing the provision by £131.8 billion. But the forecast cost to the taxpayer actually increased by £11.7 billion in the year 2022–23 and has increased again by a further £10.3 billion in 2023–24. We looked at this further as part of the Committee’s visit to Sellafield in February and will are due to hold our subsequent evidence session at the end of March. The net public sector pension liability also reduced from £2,639 billion at the end of 6 2021–22, to £1,415 at 31 March 2023 due to changes in underlying actuarial assumptions, including the changes to the discount rate. However, it is not possible to separately see the impact of the discount rate from other actuarial assumptions (such as life expectancy of future retirees) that change each year, and real changes in cash flows are obscured. recommendation a. The Treasury should include additional information within the 2023–24 WGA to demonstrate the undiscounted position of significant liabilities and provide trend analysis and narrative to explain the changes to these discounted figures over time. This narrative should include information on how the Treasury and Departments are actively managing these liabilities. b. The Treasury should also increase disclosure on actuarial assumptions other than the discount rate and how they impact government liabilities.
Government Response Summary
The government agrees and commits to publishing undiscounted data where available and including long-term trend analysis of significant assets and liabilities in the 2023-24 WGA performance report, alongside updates on liability management. It notes that accounting standards already require disclosure of other actuarial assumptions and sensitivities.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. already in the public domain. It is correct that departmental accounts should be the first place where information relevant to departmental finances are published, with WGA acting as an opportunity to aggregate, summarise and analyse trends. Where undiscounted data is available it will be published in the WGA performance report. The 2023-24 WGA performance report will include long term trend analysis of significant assets and liabilities. Where possible updates on how government seeks to manage liabilities will be provided. Linkages between discount rate information in different parts of the Performance Report and Accounting Notes will be reviewed in the 2023-24 WGA to streamline the content. Accounting standards require disclosure of significant assumptions and sensitivities as part of the notes to the financial statements. These include sensitivity analysis for other key assumptions: rate of increase in pensions, rate of increase in salaries or life expectancy in retirement.