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BIGGEST REFORM OF PUBLIC FINANCE MANAGEMENT SINCE THE GLADSTONE ERA

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FINANCE/BIGGEST REFORM OF PUBLIC FINANCE MANAGEMENT SINCE GLADSTONE ...
FINANCE/BIGGEST REFORM OF PUBLIC FINANCE MANAGEMENT SINCE GLADSTONE

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 atability.

'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 togther 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

1. The Government Resources and Accounts Bill was announced in

the Queen's speech on 17 November.

2. 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.

4. 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.

6. 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.

8. 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.

9. If you have access to the internet you can find this news

release and other Treasury information at

http://www.hm-treasury.gov.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

computerisationof 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.

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