I would like to thank you for all your support in 2024 and welcome you back to Community membership in 2025.

Our Public Sector Community has continued to grow and now stands at over 14,000 members. We value your engagement and trust you have found being a member worthwhile.

Last year was an extremely busy year for the public sector team here at ICAEW and – we know – for many of you.

A change in government resulted in a significant shift in the UK’s fiscal direction, while the local audit crisis finally came to a boil with a radical plan to get English local authority accounts back on track. Meanwhile, central government departments made good progress towards returning to their pre-pandemic performance in releasing their audited financial statements, while HM Treasury published two sets of Whole of Government Accounts as it worked on reducing delays at the national level.

We further developed our partnership with CIPFA, with new CIPFA CEO Owen Mapley and new ICAEW CEO Alan Vallance both speaking at our very successful annual Public Sector Conference on financial skills in December. We also helped influence government policy in several key areas in 2024 – we hope for the better.

We continued to campaign for a long-term fiscal strategy to address the fundamental challenges facing the UK’s public finances, as well as seeing our comments on the ins and outs of the monthly public finances appear in the national media. Other areas of focus included the evolution of sustainability reporting in the public sector, both in the UK and around the world, with the development of potential new standards by the International Public Sector Accounting Standards Board.

2025 looks like being an even busier year, starting with deciding which of a wave of consultations from government and parliamentary select committees to respond to you as the government fleshes out its plans for economic growth and public service reform. We will also be looking at the first ‘non-fiscal event’ Spring Forecast in March, the finalisation of the 2026/27-2028/29 Spending Review for central government departments at some point over the summer, and the Autumn Budget 2025 in October or November.

Here are some of our key highlights from 2024.

In 2023, ICAEW published a vision for local audit on how to bring confidence to the finances of local public bodies. Our vision makes the case for better financial reporting, high quality and more timely audits, stronger financial management and governance, and a thriving profession that is highly valued. If you are new to the local authority audit crisis then our podcast ‘What’s the problem with local audit?’ with Meg Hillier MP, previous Chair of the Public Accounts Committee, and Cllr Jamie Jamieson, previous Chair of the LGA, is a good place to start.

The majority of local government audits were incomplete for 2023/24 (and prior years) and, at the end of 2023, the system had reached a stalemate. A mechanism has now been put in place so that all outstanding audits will be finalised by set points in time – the backstop dates.

We support the backstop dates as the ‘least-worst option’. The first backstop date was on 13 December 2024, with the hope of resetting the system. Listen to this podcast that discusses the backstop mechanism in more detail, and how local authorities should be managing the external audit process at this time. We also asked the Director of Finance at Westminster City Council, Rikin Tailor, for his views on the local government audit difficulties and how local authorities might be better prepared for an external audit.

Wider reforms are underway. Given the vast amounts of taxpayers’ money local government spends, it is important that local authorities are transparent and accountable. Towards the end of last year, MHCLG launched a strategy to streamline and simplify the local audit system with the proposal to create a new supervisory body: the Local Audit Office (LAO) for England.

The UK’s public finances are in a fragile position: weak levels of economic growth since the financial crisis, demographic pressures on pensions, health and social care spending from more people living longer, and public debt close to 100% of GDP. We were closely involved in the development of ICAEW’s Manifesto 2024 ahead of the general election, our Autumn Budget 2024 submission and ICAEW’s Autumn Budget coverage.

Our coverage included an in-depth Fiscal Insights report on the Autumn Budget, one of the largest tax raising fiscal events, representing a significant change in fiscal direction from the previous government. We also continued to publish our popular charts of the week on economic and public finance related topics.

This brings me on to fraud and waste in the public sector. The complexity of our tax and benefit systems, antiquated IT systems (and lack of data sharing) and the sheer scale of COVID-19 related transactions has led to increased fraud and error. The NAO found that fraud and error cost the taxpayers up to £81bn last year, with most of the potential loss going undetected.

Our flagship Public Sector Conference in December discussed the skills that will be needed by public sector finance professionals in the future, including in improving fraud prevention and detection, and the potential impact of AI. Please take a look at the on-demand recordings if you were not able to attend on the day. 

Alongside our annual conference we ran a campaign – Local government finance: skills for the future – looking at how we can strengthen the role of accountants and finance teams in local government.

The public sector has a key role to play in tackling climate change. Its primary role is to ensure that policies, regulation and legislation start to shift our behaviour to make climate and nature positive choices, both in the business world and private households.

In the UK, central government is following the private sector in adopting the TCFD framework. Climate reporting will create new challenges, including new data requirements, new skill sets and additional risk evaluations, including forward-looking scenario analysis. We hosted an in-person risk evaluation event with HM Treasury and the Government Actuary’s Department in 2024 and will be looking to put on further workshops this year. Please let us know if this would be of interest to you using the email address provided below.

Internationally, the IPSASB (International Public Sector Accounting Standards Board) is forging ahead with its sustainability agenda. They have launched their consultation on a draft climate standard. It is quite an ambitious standard, combining elements from both IFRS S2 and GRI frameworks – looking at the risks and opportunities for an entity’s operations as well as climate-related public policy programme outcomes on society and environment. We have analysed the proposals and compared them to both IFRS S2 and GRI. The deadline for responding to this consultation is 28 February 2025.

The economic outlook will be a key area of concern in 2025, with economic growth projected at not much above 1% and business confidence downbeat following the tax rises in the Autumn Budget 2024. Inflationary pressures persist, limiting the Bank of England’s ability to lower interest rates as quickly as was once hoped, and the level of consumer spending over the festive period suggests the cost-of-living crisis is not over yet.

The Chancellor will also be concerned about the level of interest rates with long-term gilt yields rising to their highest levels since 2008 at the time of writing, potentially costing the government tens of billions of pounds over the next five years if these rates persist. With the government asserting its “commitment to economic stability and sound public finances”, the risk is that public service budgets will need to be cut to balance the books.

We will continue to work with other stakeholders to make progress in the local government financial reporting and auditing system. We are enthusiastic about encouraging greater use and understanding of public sector financial reports and will continue to get a better understanding of who the users are and what barriers are in place that prevent better use of financial data, be it for internal decision making or for external reporting purposes.

Meanwhile, ICAEW’s public sector team will be on hand in 2025 to support our community through these early years of adoption of sustainability standards in the public sector. We will continue to engage with HM Treasury, IPSASB and other key stakeholders and will share the latest updates with you throughout 2025. We will also take a look at the practical steps local authorities can take in reporting on climate given the capacity constraints currently being experienced by their finance teams.

As ever, it would be great to hear from you if you have any thoughts about how we can promote better accounting, reporting and auditing in the public sector in 2025, and better support the profession working in and with the public sector.

It leaves me now to say many thanks again for supporting our Public Sector Community. We hope you find our content helpful and supportive. If you have any topics you think we should cover, please contact us at communities@icaew.com.

With best wishes,

Alison Ring OBE FCA CPFA