ICAEW brought together public finance experts at an event in Westminster, to discuss the latest edition of Simply UK Government Finances. Written by ICAEW advisor Martin Wheatcroft, and published in association with ICAEW, the annual publication offers an overview of the state of the UK’s public finances. 

Public Accounts Committee (PAC) Chair, Sir Geoffrey Clifton-Brown, led the roundtable discussion with ICAEW’s Director of Public Sector and Taxation, Alison Ring, and Wheatcroft. Participants included:

• PAC - Deputy Chair, Clive Betts;
• Office for Budget Responsibility - Chair, Richard Hughes;
• Institute for Government - Director and CEO, Hannah White;
• Resolution Foundation - Chief Executive, Ruth Curtice;
• CIPFA - President, Carol Culley; and
• Office for Statistics Regulation - Head, Ed Humpherson. 

The National Audit Office and the Parliamentary Scrutiny Unit, as well as think tanks Reform and Demos, were also represented. 

Five fiscal challenges

Following opening remarks from Sir Geoffrey and Ring, Wheatcroft started off the discussion by talking about five fiscal challenges he identified in Simply UK:

1. The lack of a long-term fiscal strategy.
2. More people are living longer.
3. Weak economic growth.
4. Poor-quality public services.
5. The lack of fiscal resilience.  

Key questions posed to the participants, included:

• How can we move away from short-termism to develop a long-term fiscal strategy?
• How can we pay for the expected increase in the pension age population over the next 20 years?
• How can we strengthen the public balance sheet and improve resilience against future economic shocks? .  

The current weak state of the public finances and the constraint that places on the choices available to the Chancellor was touched on by several participants.

Others highlighted the HM Treasury projections from the early 2000s that thought it might take 50 years for public debt to reach around 100% of GDP. In reality, it has taken less than 25 years to reach that point, and the latest long-term projections now show public debt exceeding 270% of GDP 50 years from now.

Healthcare and long-term fiscal understanding

Other topics covered during the discussion included:

• productivity in the NHS,
• the annual budgeting process within Whitehall,
• the need for reform of local government finances, and
• how investing in prevention could be made a higher priority when decisions are taken.  

Health was highlighted as a big driver of unsustainability in the public finances, with rising unit costs a more significant factor than increases in the number of old people. 

The need for mechanisms to help the government be better prepared for future economic shocks was discussed.

To help future governments to invest in the long-term, a policy is needed to ensure potential future gains from economic good news are used to strengthen the public balance sheet, rather than the extra funding being spent.

A broad theme mentioned by several attendees was the need to improve fiscal literacy both among politicians and the public at large, with the media’s reducing role in providing insight into fiscal policy lamented by several participants.

The point was made that it is not just politicians and policymakers that prioritise the short-term, but the general public too. Communicating why investing in the long-term is the right thing to do is therefore very important.

The debate was not all  doom and gloom, with several participants highlighting how relatively small changes over 25-years or so could make a significant difference. The public finances may be in a very weak position today, but they don’t have to remain that way.

Supporting policymakers

The roundtable is just part of ICAEW’s wider engagement with policymakers and influencers on how to improve reporting and financial management in the public sector. 

Another parliamentary event is expected later in the year to help select committee members  better understand annual financial reports and make better use of them in their work.