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19 November 1999
BIGGEST REFORM OF PUBLIC FINANCE MANAGEMENT SINCE THE GLADSTONE ERA
The biggest reform and modernisation programme in the management of the country's public finances since the Gladstone era was announced today by Chief Secretary to the Treasury, Andrew Smith.
The Government Resources and Accounts Bill (RAB), published today, is part of the government's fiscal framework aimed at its modernising agenda and is to apply the financial reporting practices of the private sector and much of the public sector to central government.
Welcoming the Bill, Andrew Smith said:
"Resource Accounting and Budgeting is a vital part of our modernising agenda and this Bill marks a major milestone on our way to full implementation. It demonstrates this Government's commitment to introducing best-practice accounting methods in line with the Code for Fiscal Stability.
"Through Partnerships UK, the Bill will also give the public sector access to private sector skills. I want to see the progression of well-structured Private Finance Initiative (PFI) and Public Private Partnership (PPP) projects delivered in all sectors of the economy. This will bring about improved front line services to the public, increased deal flow together with a reduction in the cost, delay and uncertainty by bidders for PFI projects."
The main purposes of the Bill are:
- to introduce Resource Accounting and Budgeting into Government accounts and to modernise the operation of other aspects of the Exchequer and Audit Departments Acts;
- to provide enabling legislation for the preparation and audit of consolidated accounts for the whole public sector;
- to spend the money required to set up Partnerships UK to facilitate a new body designed to make the public sector a better client in PFI/PPPs.
The Resource Accounting and Budgeting Bill will improve the way Parliament votes and scrutinises public spending. Objectives and outputs will be costed through RAB, underpinning the Public Service Agreements. There will also be better information on buying and using assets with improved comparisons between PFI/PPP projects and government capital spending.
NOTES TO EDITORS
The Government Resources and Accounts Bill was announced in the Queen's Speech on 17 November.
The move to RAB is an integral part of the Government's fiscal framework and its Modernising Government agenda. RAB applies the financing reporting practices of the private sector and much of the rest of the public sector to central government. It will involve producing the equivalent of the main financial statements from commercial accounts, in particular a balance sheet and the equivalent of a profit and loss statement and using these as one of the means by which public spending is planned and controlled.
3. Whole of Government Accounts (WGA) represents an expansion of RAB principles to the preparation of consolidated accounts covering the entire public sector. This fulfils the commitment given in The Code for Fiscal Stability (in effect given legal status by the 1998 Finance Act) to produce accounts for the whole of the public sector, on a consolidated basis if possible, in order to provide better transparency and accountability to Parliament as well as greater certainty to fiscal planning.
Practical considerations require a staged approach to producing the Whole of Government Accounts. The immediate commitment is to producing a set of consolidated accounts for central government. Further research is required before a final decision can be made to extend the coverage to the rest of the public sector.
5. The existing legislation on government accounts are, principally, the 1866 and 1921 Exchequer and Audit Departments Acts but also the National Health Service (NHS) Act 1977 in respect of introducing RAB into the NHS.
The creation of Partnerships UK was announced by the then Chief Secretary to the Treasury, Alan Milburn, on 22 July 1999 and, when created, will take over from the Treasury Taskforce in the Spring of 2000.
7. Partnerships UK will become a private sector-led body to help increase and improve investment in the UK's public services from private sources. Partnerships UK will employ high calibre staff to help the public sector get the best deal from the Private Finance Initiative and other forms of public-private partnerships.
A Steering Group is currently in operation to oversee the development of Partnerships UK business case to consider governance issues, and to prepare for the raising of private sector capital, which is not expected to take place before March 2000. The Government appointed N M Rothschild & Sons Limited as financial advisers and Herbert Smith as legal advisers to the Treasury on 28 October 1999 in connection with the creation of Partnerships UK.
GOVERNMENT RESOURCES AND ACCOUNTS BILL DESCRIPTION OF CLAUSES
CLAUSES 1 and 2 deal with the operation of the supply system. The budgeting and supply systems are almost entirely non-statutory and nothing in the Bill changes this. However, the Bill does modernise those few aspects of the supply system which are already covered by statute to take account of RAB. The main change is in clause 2 which will enable departments to account for appropriations-in-aid on an accruals rather than a cash basis.
CLAUSE 3 would enable the procedures for making issues from the Consolidated Fund to be modernised. The current legislation effectively requires a manual system and has prevented the computerisation of the process.
CLAUSE 4 provides a power for the Treasury to repay sums surrendered in error to the Consolidated Fund.
CLAUSE 5 requires the preparation of resource accounts (which will replace appropriation accounts under RAB), makes provision for the Treasury to determine the form of the accounts and would enable the Treasury to appoint accounting officers to be responsible for the preparation of the accounts.
CLAUSE 6 sets out the requirements for the audit, by the Comptroller and Auditor General (C&AG), of resource accounts and the procedures for laying the accounts, together with the C&AG's reports thereon, before parliament.
CLAUSE 7 would give the Treasury power to direct the form of other departmental accounts and would require the C&AG to audit these.
CLAUSE 8 would allow the Treasury to set the accounting rules for departments to deal with VAT.
CLAUSE 9 would provide the C&AG with access for the purpose of auditing departmental accounts.
CLAUSES 10 and 11 are the enabling legislation to enable Whole of Government Accounts to be prepared and audited.
CLAUSE 12 and 13 would enable the Secretary of State for Health to control health authorities and Primary Care Trusts on a RAB basis. This is necessary as these bodies will be within the RAB accounting boundary..
CLAUSE 14 amends the Government of Wales Act to enable information to be presented on a resource basis by the Secretary of State for Wales.
CLAUSES 15 to 17 would enable the Treasury to incur expenditure in respect of the formation of a new body (Partnerships UK) to be set up to provide advice on and invest in public-private partnership arrangements and to provide financial assistance to it.
CLAUSES 18 to 26 cover various general and miscellaneous matters mostly of a technical nature.
SCHEDULE 1 lists the minor and consequential amendments flowing from the Bill. The most significant are the changes to the House of Commons (Administration) Act 1978 and the National Audit Act 1983 which will require the House of Commons and the National Audit Office to prepare their accounts on a RAB basis (these provisions have been agreed with these bodies).
SCHEDULE 2 lists the repeals of earlier legislation required by the Bill.