As we reported on the release of the Whole of Government Accounts (WGA) for 2017-18 a week and a half ago, the good news is the transparency that the WGA provides. The bad news is the picture of the public finances contained therein!As illustrated by our #ICAEWchartoftheweek, reported liabilities of £4,579bn significantly outweigh public assets of £2,014bn to give net liabilities of £2,565bn at 31 March 2018. This is much greater than the £1,779bn reported in the fiscal numbers for public sector net debt, as although fixed assets and other assets are taken into account, the WGA balance sheet includes a much wider range of liabilities.
The £1,865bn in net pension obligations owed to public sector workers are the most prominent of these other liabilities, but the £422bn of long-term liabilities for nuclear decommissioning costs and clinical negligence (amongst others) are not insignificant either!
Some commentators argue that the accounting balance sheet reported in the WGA is not sufficient to fully understand the financial position of the government. Promises to pay welfare benefits such as the state pension, long-term sickness support, or to pay for health and social care costs in retirement, are not included as liabilities; if they were, the red ink would be a few additional trillions worse than that shown here.Without much in the way of investments or significant natural resources to fall back on, the government is in the invidious position of either raising more in revenues or cutting back on the promises they have made. In recent years the government has mostly chosen to tackle the promises side of this equation by cutting back on public services and certain welfare benefits to try and contain costs.
With public services under strain, and an increasingly long-lived population expecting a return on the amounts they have 'paid in' over the course of their working lives, it is difficult to see any easy ways of cutting back much further on the promises successive governments have made to look after us into our twilight years. Similarly, it is difficult to see how any government could persuade the public of the need for significant tax rises.
Unfortunately, with no sign of a long-term fiscal strategy on the horizon, this particular fiscal circle is unlikely to be squared any time soon.
To find out more about the Whole Government Accounts, read ICAEW's analysis of the WGA 2017-18 by clicking here.