The Government accounts paint a depressing picture

January 08, 2015 9:19 AM

Earlier this week, the Public Accounts Committee (PAC) report makes quite a few recommendations concerning the publication of the Whole Government Accounts (WGA). These accounts are very important for Parliamentary and public scrutiny as it details how national and local government and quangos manage their finances. It is worth reiterating for a moment that this is not their money, but ours – each and every taxpayer’s. 

The accompanying press release quoted PAC Chair Margaret Hodge MP who called the WGA ”an essential tool for holding Government to account for its management of the public finances” but the report goes on to highlight several areas where further action needs to be taken.

It is still unknown how all £100 billion of the government’s spending cuts have been achieved. The PAC report argues that despite evidence of spending reductions in some areas (including welfare and pay restraint), “the make-up of the remaining savings was not clear.” The recommendation to include full details of spending reductions in the WGA, for full disclosure and in order to analyse trends, is most welcome. This would promote greater scrutiny and it will also demonstrate where further spending reductions can be made. The TPA have been arguing this for quite some time, most notably in our book How To Cut Public Spending (and Still Win an Election).

Similarly the WGA should note the uncertainties and risks associated with implementation of fiscal consolidation programmes. In the current Parliament for example, tax revenues have been significantly lower than forecast, and there are large spending obligations (such as nuclear decommissioning) where costs may continue to increase.

Most problematic when trying to reduce government spending is the £250 billion - over a third of the whole budget - that is ring-fenced. When such a large proportion of spending is sacrosanct we cannot hope for a serious debate on the issue, as my colleague Andy Silvester pointed out with regards to the NHS. If we are truly going to have responsibly managed public finances, budgets should be set purely on what is required in order to achieve the departments’ aims. Talk of ring-fencing is political claptrap designed to hoodwink voters into thinking that you care about more than the x being put next to your name.  

It is not useful to the debate to shout “WE NEED MORE MONEY” or “THE BUDGET FOR OUR X OR Y NEEDS PROTECTING!” This obfuscates any debate and a crime of which all parties are guilty. Moreover it makes them look rather confused when they say that “further cuts are necessary” but then start pledging money like it is going out of fashion; the bidding war on the NHS is the latest depressing example.

It smacks of a lack of self-control (or perhaps no control at all) and the PAC report continues in this theme as it criticises the lack of a coherent policy on reporting fraud and error costs. The Treasury is nominally in charge of such a measure but such statistics are not collated in the WGA and the Committee’s recommendation that this be standard practice should be carried out. But why on this great green earth does this not already exist? Indeed why does each department need to be told that fraud and error prevention is a good thing? I despair sometimes…

The report is “sceptical as to whether government [is] taking [pay restraint] seriously.” Currently, we are told, the Treasury does not provide sufficient oversight to ensure that all of public sector complies with the Government’s expectations on the matter. It has been “slow to exert direct control over decisions taken by the wider public sector when setting remuneration packages.” I wonder who the Treasury were expecting to do this for them. It certainly wasn’t those in the education sector who the PAC report specifically criticises for allowing some “super-heads” and university Vice-Chancellors to receive “excessive pay-awards”. These instances, and others, undermine the principle of pay restraint and, while we remain ‘all in it together’, stupendous remuneration for some public sector jobs should not be tolerated. If the current Government wants to be taken seriously on its deficit reduction plan it needs to reduce such blatant hypocrisies.

The PAC’s recommendations to set clear expectations for senior pay and pay restraint as well as publishing pay trends are welcome but it is sad that this comes so late into the parliament.

Talk of hypocrisy brings us to the last point I want to examine from the report. The use (when in the de facto employ of the government) of ‘off payroll’ arrangements where individuals set up companies in order to minimise their tax obligations. While all the main parties threaten to roll out the tanks against those who use legal tax loopholes the government allows people (who should be full time employees) to use these arrangements. This is chutzpah of the highest order. 

These arrangements “still occur too often” in central government but at least they must report such schemes – unlike local government and public corporations. If nothing else this gives credence to the TPA’s argument for a simple tax system.

There are many sensible suggestions in this report, and I take no issue with its recommendations (and there are more than I have mentioned here). What is distressing is the lackadaisical manner in which some areas of public finance appear to be run. I hope that the greater scrutiny that a strengthened WGA can provide will be effective because, quite frankly, some of the points the report makes just show how far there is to go (even in approach and attitude) before we balance the books. Budget surplus is forecast by the OBR’s crystal ball to be in 2018/19, but with the issues this report highlights I am not going to get too excited.

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