Local government reorganisation may harm effort to fix systemic financial weaknesses, PAC warns

- With National Audit Office unable to sign off government accounts for second consecutive year, report warns levels of missing and unaudited data are not set to improve in near future

- Risks highlighted of lack of transparency in Scottish devolved spending and accountability lack for billions of pounds of public money spent in the academies sector

HM Treasury (HMT) must not underestimate the impact of local government reorganisation on the Whole of Government Accounts (WGA). In a new report on the WGA, the Public Accounts Committee (PAC) warns that the reliability of this important document continues to be undermined by missing and unaudited data. It is therefore likely that the National Audit Office (NAO) will be unable to give government's overall accounts a clean bill of health for the third year running in 2024-25.

The WGA is a consolidation of financial information from 10,000+ public bodies and £1 trillion worth of expenditure, and is designed to provide Parliament and the wider public with a comprehensive view of public finances. The Comptroller & Auditor General (C&AG) of the NAO disclaimed these accounts for the first time ever for 2022-23 - meaning that he was unable to obtain sufficient, appropriate evidence upon which to form an opinion, due to severe backlogs in English local authority audits.

This hindering of transparency on how taxpayers' money is spent prompted heightened scrutiny from the PAC. However, the C&AG issued a disclaimed opinion once again in 2023-24, and there is no clear indication that this position will improve in the near future. The WGA is still failing to achieve its full potential due to poor-quality data, with the volume of unaudited data in the WGA growing significantly (from 211 entities in 2021-22 to 280 in 2023-24). HMT should consider how to enhance transparency, by distinguishing in the WGA between organisations that are absent due to lack of capacity, and those that are due to a lack of compliance.

This repeated disclaimer by the NAO highlights systemic weaknesses in local government financial reporting and local audit arrangements. The government's ongoing reorganisation programme ending the two-tier system of local government and establishing new unitary councils could further hinder progress and complicate efforts to bring together more complete and transparent financial data through the WGA. The timing and delivery of local government reforms remains unclear, and the PAC is calling on government to set out the actions it has taken and will take to address the local audit crisis, with clear milestones for success rather than vague ambitions. Government should also outline how it intends to manage the complexities arising from local government reorganisation.

The report also warns of a lack of transparency in devolved spending, with Scotland second only to the local authority sector in its poor performance in submitting data to the WGA. This lack of information from Scottish entities is a serious impediment to the scrutiny of all parts of the UK public sector to provide value for money. Separately, there is a risk of a lack of accountability for billions of pounds of public money spent in the academies sector due to a misalignment of financial reporting dates between these institutions and central government, resulting in the academies sector being entirely omitted from the WGA.

Without action on these issues, the WGA's ability to present a consistent and comparable picture of education spending will remain undermined, and in the absence of detailed spending analysis for devolved nations will similarly continue to fail to provide a complete view of how public money is used across the UK as a whole.

The WGA sets out large financial liabilities for the UK. The three largest are:

• Net public sector pension liability, at £1.3 trillion;
• Nuclear decommissioning, at £106.9bn; and
• Provision for clinical negligence, at £58.2bn.

However, these values, subject to inflation, can significantly alter year-on-year, and are therefore difficult for readers to understand. The PAC is reiterating its strong belief that a simple comparison of these liabilities (ie the real terms price between this year and the previous year) should be made possible on an annual basis, so that it is apparent whether the price is going up or down and what action government is taking. This should be incorporated for all three of these large liabilities on an on-going basis.

Sir Geoffrey Clifton-Brown, Chair of the Public Accounts Committee, said: “An ideal Whole of Government Accounts would be a transparent document which any citizen could easily use to assess how the taxpayer's pound is being spent. Unfortunately, with missing data still undermining its reliability and little indication of future improvements, a more apt name for this document would be Incomplete Government Accounts. Where the WGA can be useful at present is less in the light that it sheds but the shadows it casts, showing where more action needs to be taken – unaudited data from local government; a lack of consistent and comparable spending by academies in education; a lack of information on spending for devolved nations. The entire omission of the academies sector from the WGA is a serious shortcoming, though there are important discussions ongoing as to how this could be remedied, so that some information could be incorporated next year.

“This is also an area where we could see the risks of wholesale local government reorganisation made manifest, at a time when most local authorities are under great financial strain. Merging councils into larger authorities risks exacerbating the challenges of transparency from which the WGA already suffers. Against the headwinds of the local audit crisis, there has been some progress following heightened scrutiny by this Committee, including the establishment of a Local Audit Office. We will keep pushing government to fulfil the WGA's potential as a truly useful window into the state of the nation's finances.”

PAC report conclusions and recommendations 

The Whole of Government Accounts (WGA) is an important document but fails to achieve its full potential due to poor-quality data. The Whole of Government Accounts (WGA) consolidates financial information from over 10,000 public bodies, providing Parliament and the public with a comprehensive view of public finances. For 2023-24, the Comptroller and Auditor General (C&AG) issued a disclaimed audit opinion on the WGA for the second consecutive year, due to missing and unaudited data. This repeated disclaimer by the National Audit Office (NAO) highlights systemic weaknesses in local government financial reporting and local audit arrangements. This has prompted heightened scrutiny by the Public Accounts Committee and driven legislative reforms, including the establishment of a dedicated Local Audit Office, simplification of accounting requirements, and an increase in audit fees aimed at attracting auditors back into the market (see conclusion 2). The responsibility for producing and consolidating the WGA rests with a small team of six to seven staff within HM Treasury; a significant and complex undertaking for such a small team.

Recommendation 1. The Treasury should assess whether its existing focus- including staffing levels- on WGA is sufficient and aligned with the complexity and scale of the work required to improve the compliance and accessibility of WGA.

The Whole of Government Accounts (WGA) has received a disclaimed audit opinion for two consecutive years, with no clear indication that this position will improve in the near future. The Committee remains concerned that the Ministry of Housing, Communities and Local Government (MHCLG) is failing to exert sufficient pressure on local authorities and their auditors to restore assurance in the local government sector. While the statutory deadline for publishing audited accounts has helped reduce missing data, from 211 entities in 2022-23 to 201 in 2023-24, the level remains unacceptably high, and HM Treasury still projects that 145 entities will be missing from WGA 2024-25. Importantly, this improvement in underlying statutory accounts has not translated directly into timely submissions to the Whole of Government Accounts (WGA), and there is still further attention required from HM Treasury to increase WGA submission rates. Moreover, the reduction in missing data has coincided with a rise in unaudited information, which undermines confidence in the consolidated accounts. The volume of unaudited data has grown significantly, from 211 entities in 2021-22 to 227 in 2022-23 and 280 in 2023-24. Missing and unaudited data (including consolidated components with a disclaimed opinion) undermines the reliability of the WGA and as a result it is likely that the C&AG will issue another disclaimer of opinion for WGA 2024-25.

Recommendation 2.

1. a) MHCLG should provide, alongside the Treasury Minute response to this report, a document setting out a clear timetable of required actions for local authorities and their auditors and explain how it will monitor and enforce accountability for these actions.
2. b) The Treasury should consider how it can enhance transparency regarding the types of missing data by distinguishing between entities that are absent due to incapacity and those that are absent due to lack of compliance.

The timing and delivery of local government reforms remain unclear. The local government audit crisis stems from long-standing issues, including fragmented system ownership, limited audit and finance capacity, rising regulatory demands, overly complex accounts and financial reporting requirements, and the low profitability of local audit work. To address delays and improve transparency, statutory deadlines (“backstop dates”) were legislated for on 9 September 2024, requiring audited local authority accounts to be published by set dates. These deadlines aim to accelerate audit completion, reduce the backlog, and restore confidence in timely financial reporting. However, whilst the backstop is increasing the number of accounts brought to completion, it is also resulting in a higher number of disclaimed opinions, leaving an assurance gap over the data included within these accounts. Further reform followed on 18 December 2024 with the Local Audit Reform Strategy, which includes provisions in the English Devolution and Community Empowerment Bill to establish a Local Audit Office as a unified oversight body. While MHCLG aspires to eliminate qualified or disclaimed accounts by 2027-28, its reliance on vague ambitions without clear milestones makes progress difficult to assess. MHCLG officials have been over-optimistic before about how quickly audit timeliness could be improved. It will be important that the Treasury does not underestimate the impact of local government reorganisation on the Whole of Government Accounts.

Recommendation 3.

1. a) MHCLG should provide, alongside the Treasury Minute response, a document which sets out:

• the actions already taken to address the local audit crisis, including milestones achieved to date,
• Key dates and deliverables that remain outstanding, with clear evidence of how these will be met,
• Further measures the department intends to implement to ensure resolution, including how it will ensure that auditors build back assurance in a timely manner,
• How and why it is satisfied that its plans will be effective and its timetable achievable.

1. b) Treasury should outline in the Treasury Minute response how it intends to manage the complexities arising from the Local Government reorganisation programme on future WGA submissions.

The Treasury has improved long-term liability disclosures, but further work is needed to clearly convey their insights and relevance to readers. The WGA includes several large and complex liabilities, which the Committee has previously noted are difficult for readers to understand and whose values change significantly due to changes in the discount rate. The three largest liabilities include:

• Nuclear Decommissioning provision: Decreased by £19.1 billion from £126.0 billion in 2022-23 to £106.9 billion in 2023-24.
• Clinical Negligence provision: As of 31 March 2024, the Department of Health and Social Care (DHSC) reported clinical negligence provisions totalling £58.2 billion, a decrease from £69.3 billion at 31 March 2023.
• Pension liabilities: net pension liabilities have decreased from £2,639.1 billion in 2021-22 to £1,311.9 billion at 31 March 2024.

Discount rates are used to calculate the present value of future cash flows, reflecting how much a future obligation is worth today, and are closely linked to interest rates, gilt yields, and inflation. Under International Financial Reporting Standards (IFRS), HM Treasury correctly applies a real discount rate (adjusted for inflation) to value long-term obligations. However, the Committee has previously urged HM Treasury to present both discounted and undiscounted values for all major liabilities to improve transparency and accessibility for readers. We strongly believe these figures should be comparable year-on-year so that it is possible to see what action is being taken by the Government to reduce these liabilities.  In 2023-24 HMT produced discounted and undiscounted values for the nuclear decommissioning provision balance only. There is therefore no reason why they should not produce it for all other long-term liabilities.

Recommendation 4.

1. a) In addition to the discounted values required under IFRS, Treasury should disclose undiscounted values for: i) Nuclear Decommissioning provision, ii) Clinical Negligence provision, iii) Pension liabilities.  in the 2024–25 annual report and accounts. This is the second year running that we have made this recommendation. All long-term liability disclosures should be accompanied by explanatory narrative on their practical implications to the public.
2. b) Treasury should outline in the Treasury Minute response what action Government is taking to reduce these three largest liabilities: i) Nuclear Decommissioning provision, ii) Clinical Negligence provision, iii) Pension liabilities.

The non‑coterminous reporting date of the Academies sector risks undermining comparability and weakening accountability for billions of pounds of public money. The WGA consolidation process faces persistent challenges due to the misalignment of financial reporting periods between academies and central government. Academies operate on a financial year ending 31 August, whereas the government's year ends on 31 March, creating timing mismatches when incorporating academy accounts into the WGA. HM Treasury has previously noted that aligning the academies' year end with the government's would not be feasible, citing disruption to the sector's operational cycle, costly system changes, and the administrative and audit burden of managing two-year ends, which it argues would not represent value for money. We believe this is a very weak argument and require more detailed assessment of the justifications to be convinced that the current approach remains the most appropriate. We note that unincorporated businesses were encouraged by HMRC to change their reporting dates- at considerable cost to each business.

Recommendation 5.

1. a) Treasury should outline in the Treasury Minute response the discussions held with the Department for Education to align financial year-end dates for academies.
2. b) Treasury should provide, alongside the Treasury Minute response, their value for money assessment of aligning the Academies sector.

The Whole of Government Accounts (WGA) is not sufficiently transparent on devolved spending. The WGA is designed to provide a comprehensive picture of the UK's public sector finances and support more effective management of fiscal risks. By consolidating financial information across government, the WGA aims to improve transparency and enable better-informed decision-making on long-term obligations and fiscal sustainability. However, the Committee notes that the WGA does not currently offer sufficient evaluation of devolved governance structures or detailed examination of how devolved budgets are allocated and managed. This gap limits the ability of Parliament and the public to fully understand the financial implications of devolution and assess whether resources are being used efficiently across the UK. Furthermore, recent analysis indicates that Scotland are the second-poorest performing sector- surpassed only by the Local Authority sector- in the timely submission of returns to the WGA. The lack of data from Scottish entities is a serious impediment to scrutinise all parts of the UK public sector to provide value for money.

Recommendation 6.

1. a) Treasury should outline in their Treasury Minute response how the WGA disclosures will be updated in the 2024-25 annual report and accounts to clarify devolved spending.
2. b) Treasury should outline in their Treasury Minute response how they will ensure Scottish entities submit audited data in the 2024-24 WGA.