UK local government accounts need clarity, says ratings agency Fitch

28 Sep 15

A leading international credit rating agency has criticised the presentation of UK local government accounts, saying they cannot be easily compared with those of other countries.

Fitch said it takes longer to extract complete financial information from the public accounts of local authorities in the UK than it does for many other western European countries.

“This can make it difficult to compare [local and regional government’s] budgetary execution and performance and their fiscal flexibility across countries,” the agency said in a statement.

Highlighting the recent devolution bids submitted to Whitehall from 38 areas and a rise in local authority debt, Fitch added that investors are likely to become more interested in local government accounts.

Local authorities produce a comprehensive income and expenditure statement, a balance sheet and cash flow statement in their financial accounts. But the ratings agency said format changes since the 2011 financial year have resulted in some presentation differences.

Cash flow statements are now compiled using the indirect rather than the direct method,” Fitch said.

“Some detailed cash flow data, such as employee costs, fees for charges and services, and the costs of supplies and services are no longer published in the I&E statement, which presents gross expenditure and income according to the services it is spent on (for example housing, education, social care), or in the accompanying notes.”

Responding to Fitch’s comments, Alison Scott, assistant director for local government and governance at CIPFA, said: “UK local government leads the way in compiling its accounts in line with international financial reporting standards allowing direct comparison globally.

“However, because of the way local authorities are funded it is then necessary to adjust the comprehensive income and expenditure statement and balance sheet to reflect the funding position, mainly in relation to pensions liabilities and capital financing. These adjustments are all set out within a single statement in the accounts – the Movement in Reserves Statement.”

But she added that CIPFA has its own concerns about the complexity of accounts and is currently consulting on changes to make them more accessible to lay readers and local taxpayers.

“The institute is committed to accounts that give a true and fair view of local authorities’ financial position whilst remaining as accessible as possible to all readers,” Scott said.

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

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