Economy and Infrastructure

01.04.19

Accounting will be key to tackling intergenerational equity

Alan Birmingham, CIPFA policy manager devolved governments, addresses a somewhat overlooked problem: intergenerational equity.   

As public sector employees’ pension liabilities continues to take off, intergenerational equity could be seen as a major issue for the United Kingdom. However, you wouldn’t know this looking at the nation’s balance sheet.

One reason is the UK’s Whole of Government Accounts (WGA) does not include state pensions. This in a sense seems at odds with a core purpose of the WGA, which is to give foresight, allow for more strategic decisions, and improve the overall stewardship of long-term public finances.

This issue was raised in a recent Bright Blues report that pointed out, despite recent changes to pension schemes to reduce state pension liabilities, if it were now added to the WGA there would be an additional £4.2trillion on top of current liabilities – far exceeding current net liabilities of £2.4trillion.

Rightly, the report points out that these liabilities will need to be paid for by someone, and without taking any mitigating action, it will be future generations who will shoulder the burden.

This lead to a recommendation in the report that “the UK’s Whole of Government Accounts balance sheet should include a liability to represent future State Pension payments, based upon a realistic expectation of the future cash outflow, discounted using gilt yields.”

Interestingly, such a change could be on the way, with the International Public Sector Accounting Standards Board (IPSAB) issuing its new accounting standard covering social benefits (IPSAS 42 – Social Benefits), which would bring pensions into the balance sheet.

The standard is applicable from January 2022, so at some point the Financial Reporting Advisory Board (FRAB) to the Treasury will make an assessment of the applicability of this new standard to UK government financial reporting. But will it crystallise and add £4.2trillion to the state debts?

Well, taking a closer look, this is very unlikely. By applying IPSAS 42’s general approach to recognising liabilities for state pensions, the liability is only recognised when an individual reaches retirement age.

This means satisfaction of the eligibility for each state pension payment is a separate event, even though validation of that eligibility criteria may take place less frequently. So the liability to be recognised at the end of the year is for the next payment only.

However, while it may not reflect a full £4.2trillion liability, IPSAS 42 will have an impact by adding valuable information to the WGA, and strengthen the strategic management of public finances by helping government better recognise social benefits expenditure.

Improving management of both the government’s liabilities - and not forgetting UK assets, which currently amount to £2trillion - will be vital to ensuring long-term improvements to the government’s financial position and financial strength.

There are of course challenges ahead, with IMF also reporting recently that in terms of net worth the UK public sector balance sheet is second worst in terms of those assessed, with only Portugal having a lower net worth (both had liabilities outweighing their assets).

While adding the projected £4.2trillionn would be an overzealous accounting treatment, implementing IPSAS 42, and better recognising and managing the intergenerational equity being generated by social benefits, such as pensions, seems prudent.

 

Enjoying PSE? Subscribe here to receive our weekly news updates or click here to receive a copy of the magazine!

Comments

There are no comments. Why not be the first?

Add your comment

 

related

public sector executive tv

more videos >

latest public sector news

A fifth of public sector workers have never received a thank you from the people they serve

13/06/2019A fifth of public sector workers have never received a thank you from the people they serve

A fifth of the country’s public sector workers say they have NEVER received a ‘thank you’ for doing their job as Public Service... more >
New marketplace improves public sector access to latest tech

11/06/2019New marketplace improves public sector access to latest tech

The Government has launched a new marketplace for innovation, providing a smarter way for public sector customers to access the very latest techn... more >
Time to build a truly northern powerhouse

11/06/2019Time to build a truly northern powerhouse

Jack Hunter, a research fellow at think tank IPPR North, discusses how to use the Northern Powerhouse to encourage greater social purpose among b... more >

editor's comment

25/10/2017Take a moment to celebrate

Devolution, restructuring and widespread service reform: from a journalist’s perspective, it’s never been a more exciting time to report on the public sector. That’s why I could not be more thrilled to be taking over the reins at PSE at this key juncture. There could not be a feature that more perfectly encapsulates this... read more >

last word

The importance of openness after Grenfell

The importance of openness after Grenfell

Following the recent Grenfell Tower tragedy, Lord Porter, chairman of the LGA, argues that if the public are going to have faith in the safety testing process then everything must be out in the o... more > more last word articles >
A fifth of public sector workers have never received a thank you from the people they serve

13/06/2019A fifth of public sector workers have never received a thank you from the people they serve

A fifth of the country’s public sector workers say they have NEVER received a ‘thank you’ for doing their job as Public Service Day approaches. Almost 5.4 million people ar... more >
New marketplace improves public sector access to latest tech

11/06/2019New marketplace improves public sector access to latest tech

The Government has launched a new marketplace for innovation, providing a smarter way for public sector customers to access the very latest technologies. Spark: The Technology Innovation Mar... more >

the raven's daily blog

New rules to change the future of Social Value

05/06/2019New rules to change the future of Social Value

The government has announced the introduction of new rules to change the future of social value and make the way housing developers stump up the money for infrastructure both simpler and more transparent. These regulatory changes are designed to help achieve its ambition to deliver 300,000 extra homes per year by the mid-2020s.  ... more >
read more blog posts from 'the raven' >

comment

A fifth of public sector workers have never received a thank you from the people they serve

13/06/2019A fifth of public sector workers have never received a thank you from the people they serve

A fifth of the country’s public sector workers say they have NEVER received a ‘thank you’ for doing their job as Public Service... more >
Time to build a truly northern powerhouse

11/06/2019Time to build a truly northern powerhouse

Jack Hunter, a research fellow at think tank IPPR North, discusses how to use the Northern Powerhouse to encourage greater social purpose among b... more >
Thurrock Council: A council that gets business, does business and means business

11/06/2019Thurrock Council: A council that gets business, does business and means business

Thurrock Council’s chief executive, Lyn Carpenter, discusses an exciting new £1bn regeneration scheme on the River Thames and its imp... more >
Broken electoral system creating 'rotten boroughs'

10/06/2019Broken electoral system creating 'rotten boroughs'

The lack of candidates in recent elections is a worrying trend which impacts on communities and democracy. Willie Sullivan, a senior director at ... more >

interviews

Artificial intelligence: the devil is in the data

17/12/2018Artificial intelligence: the devil is in the data

It’s no secret that the public sector and its service providers need to invest in technology to help make better use of their resources. Bu... more >
Digital innovation in the public sector: The future is now

17/12/2018Digital innovation in the public sector: The future is now

One of the public sector’s key technology partners has recently welcomed a new member to its team. Matt Spencer, O2’s head of public ... more >
New Dorset Councils CEO on the creation of a new unitary: ‘This is going to be the right decision for Dorset’

05/11/2018New Dorset Councils CEO on the creation of a new unitary: ‘This is going to be the right decision for Dorset’

The new chief executive of one of the new unitary authorities in Dorset has outlined his approach to culture and work with employees, arguing tha... more >
Keeping the momentum of the Northern Powerhouse

15/10/2018Keeping the momentum of the Northern Powerhouse

On 6 September, the biggest decision-makers of the north joined forces to celebrate and debate how to drive innovation and improvement through th... more >

public sector focus

View all News