Britain's Dodgy Accounts

The UK Auditor General has refused to sign off the national accounts for the first time ever. That's bad enough. What makes it worse is that no one in the political or media class seems to care

Photo by Annie Spratt on Unsplash

When a public company is forced to admit that its auditors have refused to sign off its accounts, all hell breaks lose. Investors take it as a signal that something is seriously amiss and dump the shares. After all, if a business cannot provide independently verified financial statements, what horrors might it be trying to hide? So what should investors - not to mention the public - make of the fact that the UK Treasury was forced to admit this week that the Comptroller & Auditor General has for the first time disclaimed the government’s accounts? It is an extraordinary move that raises troubling questions about how the state is run.

The Whole of Government Accounts (WGA) is a unique national resource that is supposed to provide transparency on the finances of the entire public sector, ranging from central government to local government, to schools, hospitals and agencies. Yet the person who is supposed to testify to their accuracy says they cannot be trusted. Gareth Davies found that nearly 90 percent of Britain’s 426 local authorities failed to submit reliable data to the WGA and that of these, 44 per cent did not submit any data at all. Since the impact of these undetected misstatements could be “both material and pervasive”, he was unable to say whether the WGA provided a “true and fair” view of the public finances.

A regular readers will know, it has been a consistent theme of Wealth of Nations is that an important part of the answer to the deep fiscal challenges faced by highly indebted countries such as Britain lies in better management of national balance sheets. But to manage national balance sheet properly, one first needs a robust set of accounts that accurately record the nation’s assets and liabilities.

That is what the WGA is supposed to do: it brings private sector-style rigour and discipline to the public finances by applying international accounting standards. It shines a light on the future fiscal implications of policy decisions in areas such as public sector pensions, public private partnerships, and bills for clinical negligence and nuclear decommissioning that are not captured in the day-to-day data. Often these are costs that politicians might try to sweep under the carpet.