WGA: will it have a role in the Budget?

26 Feb 13
Mark Williams

Whole of Government Accounts provide a consolidated view of the UK’s finances that should be used more to inform government policy making – yet failed to even get a mention in the Autumn Statement. It will be interesting to see if this is rectified in the March 20 Budget

The second set of UK Whole of Government Accounts, covering the year ending March 31, 2011, was published at the end of October but received limited coverage. Surprising really, as the WGA provides a consolidated position for the UK central government, including health bodies, local government and public corporations. As such, it is a world first. Combined with arguably the most developed government financial reporting framework in the world, the WGA is a powerful tool to help understand historic UK government finances and aid decision-making with respect to future UK government finances.

It is even more surprising then that not enough use has been made of it. For instance, there was no mention of the WGA in the Autumn Statement published on December 5: the analysis is based principally on economic and statistical frameworks, rather than on accounting principles. Only the Office for Budget Responsibility used the information to support its forecasts/assessment on the level of government debt (based on current policy.) It will be interesting to see if there is any mention in the forthcoming March 20 Budget.

It is true that the WGA is detailed, running to circa 240 pages; that being published 18 months after the year ending limits its use; and that we only have two years of trend information. However, it provides very relevant insights on matters such as government debt, asset management, liabilities, the nature of government expenditure, the boundary of government – in summary, matters that are central to the government’s austerity programme.

Focusing on the historic measurement of government debt for example, the WGA contains a reconciliation between the WGA balance sheet and the Public Sector Net Debt position. According to the National Accounts – the standard statistical framework for measuring the economy used across the European Union and United Nations – the PSND was £901bn at March 31, 2011. The equivalent figure per the WGA reconciliation is £1,193bn, being the net liability position for UK government at the bottom of the statement of financial position (balance sheet). As the WGA is constructed under accounting principles, the net liability includes the £750bn-worth of the government’s tangible and intangible assets and £960bn of public service pension liabilities. None of these are recognised in the National Accounts measure.

There are also reconciling items with respect to provisions, investments, Private Finance Initiative liabilities and others flagged in the National Audit Office’s qualified audit report. When they are taken into account, the net liabilities position would be circa £860bn, so a lesser figure than Public Sector Net Debt in the National Accounts. So historic reporting looks different, and so is arguably more complete, under the WGA.

More important than the historic reporting for the current austerity measures is the use of accounting principles and tools, including balance sheet position, cash flow, ratio analysis and payback period. Several government policy areas would look different considered in the context of accounting principles rather than economic arguments around market failure. These include asset management, ‘spend to save’ projects and the use of the government’s covenant to form investment funds. This would lead to better decision making and ultimately best use of decreasing government resources – something everyone wants.

In terms of next steps, more should be made of the WGA and accounting tools in decision-making.  There is a key point around the timeliness of the accounts. In particular, if the third set of WGA, for the year ending March 31, 2012, had been available ahead of the Autumn Statement, the Treasury might have referred to them. There are also some accounting principles and tools that should be built into the government’s business case approach and approvals

Closing the accounts earlier would require considerably more resources and is likely to require interim financial statements, or at least a hard close of the accounts at the interim stage, and accelerated deadlines for the individual entities consolidated in the WGA. We understand that the Treasury is working towards publishing Year 3 WGA in the 2013 pre-summer recess.

Mark Williams is member of the CIPFA Central Government Panel.   For further background on WGA and the wider Government finance framework see the recently published CIPFA Central Government Finance Guide

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