Thirty-Seventh Report - Whole of Government Accounts 2018–19

The financial sustainability of some local authorities presents a significant risk to government. While local authorities have autonomy over their spending, the Treasury is the ‘funder of last resort’ should a local authority become insolvent. As COVID-19 has increased the … Read more The financial sustainability of some local authorities presents a significant risk to government. While local authorities have autonomy over their spending, the Treasury is the ‘funder of last resort’ should a local authority become insolvent. As COVID-19 has increased the fiscal pressures many government bodies face, we expect that more local authorities will soon be unable to balance their books and will be forced to issue section 114 notices in order to suspend non-essential expenditure. We would expect the Treasury to have oversight of the sector in order to properly manage the wider risk to the public finances and expect it to report on how it is managing this risk in the WGA. The Redmond review has highlighted a lack of oversight of local government and serious issues in the local government sector, including failures in current local audit arrangements. Recommendation: The Treasury should work with the Ministry of Housing, Communities and Local Government to ensure government’s response to the Redmond review is agreed and implemented as soon as possible. It should set out how it knows its oversight of local government fiscal risks is effective in the WGA given government’s exposure as the funder of last resort. Show less

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The quality of the next WGA will suffer if the Treasury does not resolve challenges in its accounts production process. In recent years, the WGA has improved in quality and the Treasury has taken steps to address our recommendations, such … Read more The quality of the next WGA will suffer if the Treasury does not resolve challenges in its accounts production process. In recent years, the WGA has improved in quality and the Treasury has taken steps to address our recommendations, such as improving the breakdown of the purchase of goods and services note. We would like to see these improvements continue at pace. We are, however, concerned that delays in local government audit and the extension of the administrative deadlines for central government accounts will lead to delays in the Treasury receiving returns for the WGA. In the current WGA, the delay in completion of audits of local government bodies has already led to a lower quality picture of the financial performance and position of the UK public sector than in the previous year. In addition, the consolidation module of the new OSCAR II IT system is not yet finalised. These are significant challenges to Treasury’s expectation to publish the WGA 2019–20 in June 2021, one month earlier than was achieved for the WGA 2018–19. Recommendation: The Treasury should set out how it is going to meet the challenging timetable it has set for the WGA 2019–20 without leading to a decline in the quality of the account. 8 Whole of Government Accounts 2018–19 1 Treasury’s role in managing risk Show less

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There is an apparent lack of ownership by the Treasury of the analysis and scenario planning activities necessary to manage the impact of COVID-19 on government finances. The scale of the likely increase in government borrowing to fund government’s response to COVID-19 is a significant new challenge to the Treasury’s …

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The WGA does not provide assurance that significant risks to the UK’s financial sustainability are well managed. A key consideration for any organisation is its financial sustainability. There are several government liabilities disclosed in the WGA that, due to their size and nature, represent significant risks to the UK finances. …

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The Treasury has aspirations to standardise financial reporting across government but has not set out how this will make the WGA more useful or accessible. The Treasury faces difficulties when trying to categorise transactions and balances reported by over 9,000 organisations into robust categories that are useful to the user. …

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Based on the Whole of Government Accounts (WGA) for the year ended 31 March 2019, we took evidence from HM Treasury (the Treasury) on 19 November 2020.1

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The WGA 2018–19 disclosures relating to COVID-19 relied heavily on a summary of a report produced by the National Audit Office.10 The Treasury did not attempt to explain to Parliament or the user of the accounts how it was managing the fiscal risk COVID-19 poses for the economy, nor how …

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The WGA discloses a number of significant liabilities that due to their size and nature pose unique risks to the UK’s financial sustainability and government’s ability to achieve value for money. At 31 March 2019, the UK’s liability in relation to nuclear decommissioning was some £152 billion.13 Whilst this was …

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We have recently raised concerns regarding the uncertainty of the estimated costs of decommissioning the civil nuclear estate and highlighted a shortage of skills at the Nuclear Decommissioning Authority (NDA) and a lack of oversight from the Department for Business, Energy and Industrial Strategy (BEIS) under previous models of outsourcing …

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Regarding the provision for clinical negligence, the WGA shows a levelling off of new cases and explains that in the second year of its new strategy to tackle clinical negligence laid out in April 2017, NHS Resolution mediated 380 cases, or 110% more than the previous year.20 We asked the …

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The scale of the likely increase in government borrowing to fund government’s response to COVID-19 is a significant new challenge to the Treasury’s objective to place the public finances on a sustainable footing.22 In its report on Evaluating the government balance sheet: borrowing published in November 2017, the NAO noted …

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We were therefore interested in what analysis the Treasury had now been conducting in order to give assurance that it had a handle on the fiscal risks the pandemic poses to the UK economy and fiscal sustainability. We asked what projections the Treasury had for tax receipts in the short …

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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 …

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Although at some points during our evidence session the Treasury stated that it was conducting forecasting and scenario planning, it was not clear what this entailed, how this differed from work by third parties such as the OBR, and whether this was business as usual or additional work specifically to …

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If debt payments increase, or tax receipts decrease, there will be a decrease in budget available for other public spending.29 We asked the Treasury whether it had identified what current projects may need to be cancelled, or what potential investments foregone, due to the ongoing impact of COVID-19 on the …

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As the UK Government has a devolved structure, local authorities have significant autonomy over their spending and have powers to invest in commercial property. We have, over a number of years, raised concerns over the behaviour of local authorities with regards to commercial property investments, noting as far back as …

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In September 2020, Sir Tony Redmond published his report Independent Review into the Oversight of Local Audit and the Transparency of Local Authority Financial Reporting (Redmond Review), noting that the local audit market is very fragile.33 He concluded that current local audit arrangements fail to deliver, in full, policy objectives …

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The Treasury confirmed to us that it ultimately bears the financial risk for local authorities. We expressed concerns about the level of oversight and control that the Treasury is exercising and whether it has a sufficient handle on this issue. The Treasury responded that it is working very closely with …

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We have previously recommended that financial reporting within the WGA should be improved by providing more detailed disclosures to ensure that users of the account have the comprehensive information needed to understand the public finances.39 WGA is increasingly important to ensuring accountability for public spending on key areas of public …

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For the WGA to record the impact of COVID-19, government bodies will need to record costs in a manner that allows the increase in spending due to COVID-19 to be identifiable from any other changes in spending.42 The Treasury outlined that it was asking Departments to track and record how …

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Previously the Treasury has expressed dissatisfaction at the level of expenditure across all types of government spending that is classified as miscellaneous or other by WGA bodies, as it prevents the WGA providing more granular information. The Treasury stated that the implementation of the new OSCAR II IT system should …

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We see WGA as a valuable and important document for both providing transparency and holding the government to account. In recent years, the Treasury has improved the quality of the WGA and has taken steps to address our recommendations, such as working towards improving the breakdown of the purchase of …

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The NAO highlighted in the C&AG Report for the WGA for the year ended 31 March 2019that the failure to complete local government audits in a timely fashion led to both an increasing number of bodies whose financial information is not included in the WGA and an increase in the …

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We expect the COVID-19 pandemic to exacerbate these challenges to the timely production of the WGA in future. The Treasury accepted that it can only start to produce the account once it receives a critical mass of audited returns from bodies and that COVID-19 and issues in the local audit …

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