Just before the last bank holiday, as most of us were easing down for a relaxing long weekend, the government was still working hard to finalise and publish the Whole of Government Accounts. This consolidates 6,000 public bodies and is perhaps the single most important public financial document. It is the only set of accounts of any country in the world to include the finances of central and local government, giving a complete picture of the country’s financial position. Before picking through the bones of the piece, it is just as well to give the government credit for this world-leading policy – but also to lament its reluctance to use the accounts effectively to inform policy decisions and longer-term financial planning.
A balance sheet for the whole public sector shows the state of our public finances much more accurately than the statistics normally used to explain the economy. Statistics only cover income and expenditure, how much we get in from taxes and how much we spend each year. However, as anyone who has ever been in business will know, this is not the whole picture. Assets and liabilities, the values and costs of what we own and owe over a period of time, are equally important. Understanding this would make it possible to regulate our economy to weather global fluctuations and secure long-term growth.
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It is a source of exasperation for accountants therefore, that after six years of developing the Whole of Government Accounts to a high-standard, they are still not used effectively to inform fiscal decision making. There are a number of likely reasons. Policymakers and politicians alike, are used to the statistical models. They are aware that statistics provide a neat way of explaining decisions to the public. There’s little incentive to make life harder when our international competitors are content with financial models that lead to poor decisions, misallocated resources and enhanced fiscal risk. They’re no better, so we don’t have to be.
But, "you win some, you lose some" is not a suitable motto for HM Treasury. We need ambition to create a competitive advantage through better-informed decision-making. Others will surely follow, but that too is good. The Chartered Institute of Public Finance and Accountancy (CIPFA) champions International Public Sector Accounting Standards (IPSAS) around the world. These deliver national reporting in line with corporate standards. Last year, Greece adopted IPSAS. Their debt, through statistical models, was reported at 175% of GDP. IPSAS put it at around 70% and accounting for assets at the end of 2013 would have reduced the net liability to just 20% of Greece’s GDP. It doesn’t take an accountant to see the impact that simply having this information could have had on averting the sovereign debt crisis.
The more comprehensive Whole of Government Accounts enables prevention rather than cure in the economy. So, what do the 2014/15 accounts tell us is in store? Well, one looming crisis is easy to spot. Public-sector pension liabilities are growing at an alarming rate, from £961bn in 2010/11 to £1.5trn in 2014/15. This is despite significant pension reforms that civil servants will be well aware of. Employers are failing to work down liabilities, focusing instead on the pressing problems of the day. These problems may feel somewhat less urgent in decades to come when paying pensions simply becomes unaffordable. This need not happen if employers and employees work together now for last lasting reform - every year wasted will cost both parties dearly.
Good accounting at a national level is good for all of us because it insulates the whole economy against aggressive fluctuations. The government cannot continue to rely on economists to do accountants’ work and expect to achieve stability. Britain today, is presented with a unique opportunity to move beyond what others do. This may be arduous and even, heaven forbid, make scrutiny in public office that bit more uncomfortable. But when the stakes are so high we must not be blind to the solutions sitting right under our nose.
About the author
Gillian Fawcett is head of the Governments Faculty at CIPFA