40/01
01 April 2001
Step Change in Public Finance -Resource Accounting and Budgeting Fully Operational
The new financial year marks a new era in public sector reform, when resource accounting and budgeting (RAB) becomes fully operational on 2 April. This is a major milestone in the biggest overhaul of financial management in Whitehall since Gladstone’s reforms of the mid-1860s.
The new system introduces best practice financial management into Government, and places the United Kingdom among the world leaders in public sector reform. Other countries are now following suit.
Chief Secretary to the Treasury Andrew Smith said:
“This is a very significant day for Government. From now on, the Government will be using best practice in financial management. We will have a far more sophisticated analysis of the cost of Government activities and will see improvements in management and decision taking right across Government.
“The implementation of resource accounting and budgeting puts Britain among the world leaders in public service reform. We can now look forward to real benefits in value for money and public sector management.”
RAB involves producing the main financial statements of the private sector, including a balance sheet, the equivalent of a profit and loss account, and a cash flow statement, and using these as the basis for the planning, control and reporting of public spending. Previously, public expenditure control and reporting were undertaken on an almost purely cash basis.
The new system:
- ensures that the full economic costs of government activity are measured properly, by including non-cash costs and matching them to the right time period;
- helps to end the historic bias against investment by clearly separating capital expenditure, and improves the management of capital by measuring, for the first time, the full costs of holding and using assets (including depreciation and a cost of capital charge);
- gives Government, Parliament and the public better information on how resources are helping to achieve Government objectives.
From the new financial year, starting on 2 April, RAB will be the currency of Government financial information. This completes a substantial programme of reform, stretching back to 1993, which has enjoyed all-party and Parliamentary support. The result is a step change in public management and accountability, and more financially aware managers in Government.
NOTES FOR EDITORS
The move to resource accounting and budgeting (RAB) was first proposed by the previous Government in 1993, with a White Paper ‘Better Accounting for the Taxpayer’s Money : Government Proposals – Resource Accounting and Budgeting in Government’ in July 1995. The reform has commanded all party support. The Government Resources and Accounts Act 2000 provides the statutory basis for the new framework.
Over the past few years, Government Departments have been introducing improved financial management systems in preparation for the transition. In August 2000 Parliament gave its approval to proceed with full RAB implementation in the financial year 2001-02, in accordance with the original project timetable. This is the first year of the three year spending plans set out in the July 2000 Spending Review, the first to be conducted on a resource basis.
Under RAB, accounting standards for Government are determined in consultation with the independent Financial Reporting Advisory Board (FRAB). The assumption in the Government Resources and Accounts Act is that the private sector Generally Accepted Accounting Practice (GAAP) will be followed, adapted as necessary for the public sector context.
For further information, please contact Charles Keseru in the Treasury press office on 020 7270 5188.
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