Archives For Public Sector

By Manj Kalar, ACCA’s Head of Public Sector

The momentous decision that was taken by the UK on 23 June to leave the EU will no doubt reverberate for a number of years. Dismantling all the legislation, government funding frameworks developed over 40 years will take quite some time to fully unravel.

It will call for the public sector to use all their expertise and skills and develop many new ones to achieve a successful transition. Some of the key areas where there will be an impact are outlined below:

Change in focus?

Over the last 6 years the key focus has been austerity so that a public spending surplus would be achieved by 2020. A tough Spending Review settlement was agreed by the public sector, providing certainty over funding over the next 4 years continuing the efficiency agenda to 2020.

Many leading economists including the influential Institute for Fiscal Studies were questioning whether the ongoing scale of cuts to government spending could be achieved before the result under two weeks ago. After the result it became a whole lot more difficult: Government lost its triple A rating. Why does this matter? Although the UK government has net liabilities over £2 trillion per the latest UK Whole of Government Accounts; it has, by and large, maintained the triple A rating which has translated to lowest level of interest payable on government borrowing. The Office for Budget Responsibility’s ready reckoner suggests that in general a 1 percentage point increase in both gilt rates and short rates in each of the next five years would increase central government debt interest spending in 2019–20 by £5.3 billion (in 2019–20 terms). This will make achieving the agreed public sector spending reductions even more difficult.

EU funding

In 2015 the UK Government paid £13bn to the EU budget which is net £5bn of the instant rebate; the EU spending in the UK was £4.5bn; so the net contribution was £8.5bn. Therefore, in theory, there will be additional funding available for the many demands including:

Cost of dismantling EU legislation and Regulation

EU funding has been channelled to support many areas of spend across the UK. For example support for agriculture through DEFRA. Farmers receive funding through the Common Agricultural Policy (CAP), In 2015, UK farmers received almost €3.1bn (£2.4bn) in direct payments, according to the NFU. There is no doubt that similar levels of funding or potentially more will be sought to supplement what they will no longer receive from the EU. It may surprise some to note that one of the biggest recipients of the CAP funding is the National Trust (almost £12 million in 2015). Similarly those receiving support as a result of the Common Fisheries Policy will be seeking the same assurances and/or relaxation on fishing quotas. UK has 16% of total EU fish processing jobs, the highest of any EU country. These may be easier to identify and potential solution for a way forward. However, there are many other areas where unravelling the web of EU funding may not be so easy.

Take for instance the significant sums provided for regional development funding and infrastructure investment such as road networks and rail. European Investment Bank loan investments in the UK economy came to €29 billion over the 5 year period 2011-2015. This was €7.8 billion in 2015:  energy projects accounted for 24% of total investments, while transport and water claimed 22% and 21% respectively. In Northern Ireland funding has been negotiated to support the development of the road network. The Northern Powerhouse was going to receive funding to supplement government investment in bringing the high speed 3 rail network and in London the cross rail project (£1bn) linking the west of London to the east of the UK. Some of these are underway and funding has been committed and others negotiated. A departure from the EU will require all of these to be assessed. Will the projects underway continue? One would assume so. But what does this mean for those in the discussion phase? Given changes in interest rates payable this will change the original business cases for the infrastructure investment.

Another significant area is the cost of dismantling the legislation. The number of Acts of parliament and statutory instruments over the last 43 or 44 years that refer to EU legislation will all need to be reviewed and potentially amended.  This raises potential capacity issues as it will require more legal experts to consider what elements of EU directives and regulations should be retained in UK law. The number of lawyers across government have fallen as the public sector has contracted by 15% since 2010 as a result of civil service reform and meeting the spending review efficiency targets. The civil service is now smaller than at any time since the end of WW2 and stands at 406,140 according to the latest figures available. This is before the Parliamentary timetable to considered legislative changes is considered. This will impact on the timing of legislative changes and the impact on Parliament’s capacity to consider and debate issues unrelated to the impact of the EU referendum.


Linked to foreign travel is the EU passport. Questions that will need to be addressed include will a new UK passport be required? What about the EU passports in circulation? Will there be a period of grace before these are withdrawn or will there be a cliff edge cut off point? One has only to think back to the summer 2014 when there were significant backlogs to processing passport applications. Of the 56.1 million usually resident population of England and Wales in 2011, 76 percent (42.5 million) held a UK passport. Any change to the current approach therefore has the potential to be significant

Not all these decisions can be made unilaterally and in devising policies around this will require interaction with the EU as well as making practical changes, requiring upfront investment by the UK Passport Service into technology as well as staffing to manage the transition.

Foreign and Commonwealth Office is another department that has seen a significant reduction in embassy staff. This was part of the efficiency drive under austerity and was possible due to sharing these duties and support from other government departments (DFID, NCA and BIS). This will need to be reversed to meet the growing need to ensure the embassy network is fully functioning.


There are many practical questions around health ranging from staffing to travel. Currently, there is the E111 to guarantee medical health care provision if UK citizens fall ill when in an EU country. Will this still service still be available? Will UK citizens need to take out travel insurance to cover any medical bills? Or will government be required to pay this back? What will the service look like, and how will it work, will need to be developed. Presently, the Department for Health reported £434m payable for UK travellers requiring medical treatment in the EEA and received £50m for EEA travellers requiring medical treatment in the UK. Will they need increased administrative support to invoice and chase non-payment?  This will potentially (inevitably?) create an additional overhead.


There has been EU funding for teaching hospitals and the ERAMUS programme, an exchange programme that fosters mobility for talent flows. Higher education institutions will be seeking assurances to ensure new rules allow for such cultural exchange and talent transition to continue.

There are many demands on the £8.5 bn funding that ‘would have gone to the EU’ and more will be required to consider the impact on trade negotiations. As noted in the newly created Brexit unit, ‘bringing together the brightest and best’ across the civil service to be headed by Olly Robbins, a significant proportion of resources will need to develop policies and procedures to ensure the UK has the trading relationship it seeks from the EU and other countries. Given the time taken to negotiate TTIP and other trade agreements (e.g. the EU-Canada Comprehensive Economic and Trade Agreement has taken almost 8 years to agree) any changes will undoubtedly require time and expert negotiation skills.

The risk is that government spirals into inertia as the focus is on the impact of Brexit. But service improvement, continued public service delivery and savings delivery plans need to remain in focus if public services are to be delivered effectively, efficiently and economically to meet plans to meet the public spending reductions.

Therein is the challenge how to focus on ensuring a successful transition and extraction from the EU and maintain government finances which are likely to come under severe pressure. The Governor of the Bank of England has already allocated £250bn to support the banks if there is another repeat of the 2008 situation. The level of government support is £1,174.5bn (short term £235.2bn and long term £939.3bn) in the 2014 Whole of Government Accounts (an increase of £78.4 billion on the previous year.) This will come at a cost – increased interest payments.

As Gus O’Donnell remarked this is what the civil service does best and will manage but based on the projected costs it will be a number of years before the benefit of the ‘additional’ £8.5bn is going to be felt if at all if there is a cost associated with keeping access to the EU.

This article first appeared on Politics Home.

Ian Welch

By Ian Welch, head of policy, ACCA

With pressure on public finances being at an all-time high on most countries – and public trust in both business and governmental institutions seemingly being at the other end of the scale – the role of finance professionals will come under increasing scrutiny.

Our new report, Setting high professional standards for public services around the world, analyses all aspects of public sector accountants’ roles and makes the crucial – and topical – observation that finance professionals must promote whistleblowing laws and policies to ensure that communities can have confidence in how their taxes are being spent.

Accountants have a critical role to play in rebuilding waning public trust by championing the cause of developing anti-corruption procedures and cultures. To do this, they will have to work with other stakeholders to help eradicate fraud and corruption, through a combination of education, fraud-awareness programmes and training in forensic accounting.

This is no easy task, but it can be done. In the UK, the newspapers are currently full of stories of scandals in the healthcare, social care and police sectors – all of which came to light through whistleblowing by public sector staff. The fear of retribution and repercussions are always there. But it is even more vital than ever, at a time of unprecedented constraints on public spending, that finance professionals feel able to highlight issues where public money raised through taxation is misspent or misused – and that those responsible can be held to account.

ACCA also calls for proper separation between the accounting and auditing functions within all governments. In some countries that does not exist, which impairs accountability and transparency. The report accepts there is a challenge in educating the populace about the audit process – and in making it more transparent – to ensure public confidence.

Yet it could be argued that the public sector is, in many ways, ahead of the private sector in this respect. The ongoing regulatory and political inquiries into the role of audit – highlighted in this space last month – reflect a wider public sense of dissatisfaction with the auditors of banks and other major institutions. ACCA has consistently argued that the role of audit itself needs to be extended to take in issues such as risk management, internal controls and corporate governance. And yet the public sector is already there – in most developed countries ‘value for money’ audits are the norm. These are notably wider in scope than their private sector equivalents.

Under VFM audits, not only do the financial statements receive a true and fair opinion, but the auditors also have to comment on aspects of corporate governance and the effectiveness of the organisation’s arrangements to secure value for public money. There is also a wider variety of reporting in the public sector, driven by its multiple stakeholders (politicians, citizens, investors, pressure groups etc) which require reporting innovations such as scorecards. Audits have to satisfy all these requirements and audiences, which can be challenging.

Yet many of these audits are done by the same firms who seemingly find innovation much harder to bring into their private sector work. In the UK, the long-awaited report by the Competition Commission on audit competition has just been published and among its findings, the Commission concludes that there is considerable ‘unmet shareholder demand with regard to information supplied by auditors’ and that by putting the demands of management ahead of investors, auditors ‘competed on the wrong parameters’. Overall, the Commission’s report is a fairly bleak assessment of the current situation.

It is however, weaker on practical remedies to improve the situation. Amazingly it doesn’t mention liability once – yet concerns over liability have been shown, via outreach carried out by ACCA and others since 2009, to be a serious deadweight on innovation. This issue simply has to be addressed.

But firms – and the wider profession – also need to reflect on whether there is more they can do to bring some of the more interesting aspects of public sector audits to bear on their private sector work. This really might start to bridge that intractable expectations gap.

This post first appeared in The Accountant in February 2013

Armchair auditors?

accawebmaster —  16 August 2010 — Leave a comment

By Gillian Fawcett, head of public sector, ACCA

Friday the 13th certainly lived up to its billing for the Audit Commission as the government chose the notorious date as the day to announce the end of 157 years of public audit as we know it. The chief executive's predictably not very pleased, as you can see from this memo, reproduced in the FT.

A move from having one centralised body to 'citizen power' instead is perfectly in-keeping with the 'big society' ideas of the government and the Audit Commission was perhaps in need of review, but scrapping the Commission outright could cost more than the £50m of potential savings identified.

When it comes to auditing its work, the public sector needs a coherent approach; authorities need to be clear on the processes and expectations involved in it. Much of the Audit Commission's work is already contracted out to large private sector audit firms, but the team that works out of the Commission itself ensure there is a consistency of approach. This won't be easy to achieve in future.

This source of centralised expertise was first available as the District Audit service which was consolidated into the Audit Commission in 2003. The Audit Commission and its district audit predecessors have been demonstrating best practice benchmarking and guidance for public sector officers for a combined total of 157 years and the accumulated wealth of knowledge and skills could be lost if the transition period to 2012 isn't handled properly.

The idea of an army of 'armchair auditors' may sound a great way of increasing citizen involvement in local government, but in reality very few members of the public actually look at their local authorities' accounts, even though they're already publically available.

When people do look, they will usually only do so to check out an area of personal interest – spending on children's play areas; recycling; park spending – rather than the accounts as a whole. Investigations into specific areas may be costly and might not be of the wider financial benefit for the public.

Going forward, there needs to be some form of co-ordinating structure put in place to avoid a public audit 'postcode lottery'.