Treasury using ‘creative accounting’, say MPs

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THE UK Government’s financial books have been dismissed as “an elaborate accounting exercise” by a Commons committee which has highlighted how the Treasury deficit calculation is based on an “assumed” reduction in future state pension payments.

The public accounts committee’s report into the Whole of Government Accounts (WGA) for 2010/11 said it does not provide a full picture of public assets, and called for part-nationalised banks such as Lloyds and RBS to be included in future publications.

The committee also said that the WGA is not yet providing a “meaningful tool for helping the government manage the public finances effectively”.

MPs on the committee, which had a majority from coalition parties, were angry that it took 19 months for the WGA to be published by the government and questioned whether it was transparent enough.

In the report, MPs noted that the WGA shows that the annual deficit was £94.4 billion in 2010/11, a reduction of £68.3bn from the £162.7bn deficit in 2009/10.

But the report pointed out that the 2010/11 accounts included a gain of £126bn from an assumed reduction in the public sector pension liability as a result of the government’s decision to change the measure of inflation used to uprate payments to pensioners, from the Retail Price Index to the Consumer Price Index with effect from 1 April 2011.

Without this change, the deficit for 2010/11 would have been more than double the government’s final amount, at £220.4bn. The report noted that the WGA showed total future obligations for 706 PFI contracts contained in the accounts were estimated to be £144.6bn.

The WGA also contains provisions of £17.5bn for claims for clinical negligence, £60.9bn for the estimated cost of nuclear decommissioning and £18.7bn for irrecoverable debts. It also asked why more was not being done to tackle £21.2bn lost each year to fraud.

The committee’s Labour chairwoman Margaret Hodge said: “The Whole of Government Accounts sets out the combined financial position of some 1,500 public sector bodies, but at the moment it is more of an elaborate accounting exercise then a meaningful tool for helping government manage the public finances more effectively. The WGA should be used to identify the nation’s key financial risks, such as the spiralling cost of clinical negligence, and set out how they are being managed.”

She went on: “It should also be used to help government make better spending choices by highlighting the financial consequences of past decisions.

“And it should allow us to track the government’s performance in key areas such as tackling fraud and error.”

A senior Treasury source said: “It is hypocritical from the Labour chair of the committee as Labour had ten years to introduce WGA and did absolutely nothing, whereas we did it within 18 months. The PAC should be impartial, not a political play thing.”