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Unknown costs of Brexit limit ability to react to economic shocks

26 January 2018

The Public Accounts Committee report says Government's high level of debt leaves little room for manoeuvre in public spending and the as yet unknown costs of Brexit place a further limit on the Government's ability to react to further economic shocks.

Decisions affecting public finances will need to be sufficiently visible

As the Government looks to reduce borrowing and debt to meet its fiscal targets, decisions affecting the public finances will need to be sufficiently visible to Parliament and the public.

The UK Debt Management Office and National Savings & Investments ability to respond to any financial crises and possible need to increase borrowing levels significantly may be more difficult in the future; because of the increasing exposure to rising inflation and the eventual unwinding of the Bank of England's quantitative easing programme.

The Whole of Government Accounts (WGA) provides us with a clearer picture of all public sector finances than ever before. It is particularly useful in highlighting future liabilities such as pension costs.

Work still to be done to ensure accounts are useful and useable

We are encouraged by the improvements that the Treasury has made to the WGA, but its value remains limited by the delays to publication and the lack of information in key areas.

We welcome the steps that the Treasury is taking to strengthen the understanding and management of the Government balance sheet but, to have a lasting effect, the Treasury will need to embed best practice in routine decision-making across government to ensure we are both harnessing the assets and managing down the risks from our increasing liabilities in the longer-term.

There is still work to be done to ensure that the WGA is a useful and useable document for Parliament and ultimately the individual citizen and taxpayer.

Chair's comment

Comment from Committee Chair, Meg Hillier MP:

"There is little wiggle room in the UK's public finances. Government accepts public sector debt is too high yet it expects to increase the amount it will borrow by some ÂŁ55 billion over the next few years.

Taken with the continued uncertainty over the financial impact of Brexit and rising levels of personal debt, I am concerned about Government's capacity to respond to future shocks to the economy.

In this context it is vital that as far as possible Government fully identifies the risks ahead and is open with Parliament and taxpayers about decisions it takes that affect the public purse.

The abolition of autumn statements and spring budgets in favour of an annual autumn budget is intended to enhance transparency, yet it is not yet clear how this will work in practice. This must be resolved urgently.

There is also work required to improve the usefulness of the Whole of Government Accounts—potentially a powerful tool for examining the state of public finances, but one which is inevitably undermined by delays to publication and a lack of clarity in areas such as pension liabilities and regional spending."

Further information

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