Posted by Tom Josephs
Should the public sector aim to follow the approach to financial control used in the private sector? In 2011 the UK government took a step in this direction by publishing the first Whole of Government Accounts (WGA) which consolidate the financial accounts of over 1,500 organizations across the public sector on a similar basis to commercial accounting. Two recent papers suggest that the UK government should build on this initiative—following the introduction of accrual-based accounting and budgeting ten years earlier—by developing better financial control structures which mirror those used in the private sector. The ideas put forward provide a useful contribution to this debate.
WGA is based on the system of accounts used internationally by the private sector, adapted where appropriate for the public sector, and uses a similar presentation to private sector accounts. It is the first time a consolidated set of accounts has been published for the UK public sector. Because it follows commercial accounting practices it should open up the public sector finances to wider external scrutiny by accounting professionals. While WGA’s contribution to increased transparency has been widely recognized it has yet to find a role in policy-making. Partly this reflects the fact that it is a relatively new innovation. It is unfamiliar to policy-makers and there is no historical series and few international comparators against which to benchmark the current position. There are significant differences between the key measures of the public sector deficit and net liability position found in WGA compared to the equivalent National Accounts measures produced by the UK’s national statistical agency which are currently used in fiscal policy-making.