Government urged to improve oversight of financial services portfolio

10 Sep 15

Whitehall should consider adopting a “portfolio” approach to the financial institutions it controls, the National Audit Office has recommended.

A report published today notes that an increasing number of financial institutions are now controlled by central government. Numbers have doubled to 54 since 2007 and includes stakes in four large banks including RBS and Lloyds, as well as several new institutions set up to address market failures in business, student and housing finance.

Total assets are valued at £222bn and exposure to debt was £2 trillion between late 2009 and early 2014.

Although the government plans to reduce its exposure by selling shares and loans, this may be offset by growth in other areas, for example, the Help to Buy schemes, the value of which has grown to £3bn.

The student loan book has also become an increasingly important part of the government’s balance sheet, the NAO said. According to Office for Budget Responsibility forecasts £84.4bn of new student loans will be issued in the period 2015-2020.

The NAO said a portfolio approach would provide oversight beyond departmental boundaries and help manage exposure to risk.

NAO head Amyas Morse said: “Financial institutions are becoming significant elements in the government balance sheet, creating a range of opportunities and risks but no one part of government is taking an overview. The government should adopt a portfolio management approach alongside the traditional departmental oversight model to provide heightened assurance over the portfolio.”

He observed that some of the institutions established to overcome market failure had endured and said their continued existence in the public sector was “questionable”.

“The government’s plan to accelerate its asset sale programme is unprecedented in scale and aims to reduce its exposure to the financial sector. We expect the government to demonstrate good practice when it disposes of these investments,” Morse said.

An orderly exit from financial services sector would take many years, the auditors concluded. The government has already begun to sell down the taxpayer stake in both Lloyds Banking Group and RBS.

  • Vivienne Russell

    Vivienne Russell is managing editor of Public Finance magazine and publicfinance.co.uk

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