The UK’s public finances are ‘even worse’ than the Chancellor’s assessment in last year’s budget, as figures from the Whole of Government Accounts are released, according to a senior figure within the ICAEW
Responding to the publication of the Whole of Government Accounts (WGA), Henning Diederichs, ICAEW public sector financial reporting manager said the accounting loss was twice the fiscal deficit.
‘The WGA provide a sobering picture of the public finances, which need much more attention than it is likely to get. With total liabilities of 214% of GDP and net liabilities of 120%, the financial position of the UK public sector is even worse than presented in the Budget. The accounting loss for the year was £98bn, more than twice the fiscal deficit of £45bn’
The WGA consolidates the audited accounts of over 7,000 organisations across the UK public sector and is based on International Financial Reporting Standards, the system of accounts used internationally by the private sector.
The WGA 2016-17 puts liabilities at £4.2trn, while valuing assets at only £1.9 trillion.
Almost 80% of government liabilities were made up borrowing (£1.3 trillion), provisions (£0.3 trillion) and pensions liabilities (£1.8 trillion).
Seeking to explain the high differential, the WGA report says IFRS is in part hiding the true picture.
‘The accounting rules WGA follows require the full liability to be recognised on the WGA Statement of Financial position. Some of these liabilities are due to be paid over a number of years, decades and (in the case of the nuclear provision) over a century. However, only a small portion of the liability falls due to be paid each year,’ say the authors.
‘Tax revenues collected in that year contribute to paying down these liabilities. The accounting rules do not allow for this future tax revenue to be recognised as an asset. ‘Therefore, WGA includes the full value of certain future commitments, but not the income that will be generated to pay those liabilities as they fall due.’
Diederichs called on the Chancellor to take action to repair public sector finances in the face of growing pressure to end austerity and increase public spending.
‘This goes a long way to explaining the pressure that the Chancellor is under. He needs to balance the need to repair the public balance sheet with the increasing demands on spending departments as austerity proves harder to continue,’ he said.
Report by Rob Munro