THE FIRST EVER publication of the UK Government’s Whole of Government Accounts (WGA) marks a huge milestone – or does it? What’s the point?
At the recent Public Accounts Committee (PAC) hearing the Chair Margaret Hodge MP welcomed the work that had gone into producing the document, acknowledging it as a significant achievement. The WGA is the largest such consolidation in the world: almost 1500 bodies encompassing the widest definition of government applied across the globe.
Aside from the sheer scale of coverage, the real reason this marks a huge leap forward for UK government is that it provides more comprehensive information in a format that we accountants understand: we have a complete picture of public sector assets and liabilities (including contingent liabilities), consolidated accounts that have been subject to audit, and a Balance Sheet that includes items such as future Nuclear Decommissioning costs, pension liabilities and PFI commitments (an area the PAC is particularly interested in).
Some of the figures are eye-wateringly large, but arguably not new. The information has always been available – WGA is based on individual central and local government bodies’ own audited statutory accounts. For example, the published pension liability (£1,133 billion) is remarkably close to the media’s previous estimate, which generated much interest even before the publication of the Hutton Report and subsequent government plans for pension reform.
The WGA places the UK at the forefront of financial reporting and addresses the challenge by Ian Ball, head of the International Federation of Accountants, that the current Eurozone crisis is a result of the “woefully deficit accounting, auditing, and financial management practices by governments.”
“The problem is that …most governments …do not actually know what their balance sheets look like.”
As scary as some of the numbers are, we do.
But publication is only the start of the journey, as reflected in the qualification of the WGA. Clearly it is not perfect and there is more to do. For instance, although the UK has applied the widest boundary definition, there are some high profile omissions. Including, notably, Network Rail; Bank of England; and the public ownership of the banks. This represents a dichotomy. Under IFRS the consolidation boundary is based on the ability to control. However HMT have followed the National Accounts boundary (used internationally for statistical reporting). Why? To complement and enhance existing data.
Given the qualifications, some may question the value of the WGA. However we must not forget the purpose of these Accounts – to improve transparency, accountability, completeness, comparability and to complement that information we have already. The Office of Budget Responsibility relied on the information in their report on long term Fiscal Sustainability. And the PAC stated it will be increasingly important to their work.
Indeed the PAC has already used the data to question the value for money of government PFI projects, stating the net book value of PFI assets created was just under £40 billion, yet future obligations – now easily identifiable in the WGA – were £131.5 billion at March 2010. So publication is resulting in greater scrutiny and will lead to better financial management across government.
Further afield, CIPFA is leading the worldwide challenge to governments. Its recent prospectus Fixing the Foundations aims to create new partnerships to tackle weak public financial management. CIPFA argues it is a significant global problem which will continue to inhibit market confidence unless it is tackled in a determined and co-ordinated way internationally.
Good financial management is not an option, it is a necessity. Good financial information is imperative to facilitate it and the WGA takes us a long way towards this.
Manj Kalar is the central government technical manager for CIPFA
Image credit: Shutterstock
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