Whitehall Monitor. No. 22: Whole of Government Accounts 2010/11 (Revenue and Expenditure) June 2013

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1 Whitehall Monitor No. 22: Whole of Government Accounts 2010/11 (Revenue and Expenditure) June 2013 David Bull Promoting the efficiency and effectiveness of government in the UK

2 I think the whole of Government accounts is incredibly powerful because [it allows spending teams to help departments think about] not only how [the department] is living with its current spending review efficiency savings, but how it feels about the next five or 10 years of potential financial risk. - Sharon White, Accounting Officer for the Whole of Government Accounts, PAC hearing on WGA 2010/11 (11 March 2013) The Whole of Government Accounts (WGA) consolidates the financial statements for the whole of the public sector of Great Britain and Northern Ireland and presents them according to International Financial Reporting Standards (IFRS). It includes information on the Government s revenue, expenditure, assets and liabilities. 1 Summary Tax revenues make up more than three quarters of the government s total revenue. o Indirect taxes, particularly VAT, have shown the greatest absolute increase between 31 March 2010 and 31 March The Government s most significant expenditures are on benefits and staff costs. o Within benefits, pension payments are the most significant cost to the Government. The figures reported for the net deficit include large adjustments (in line with the presentation of IFRS accounts). These should be factored in to any analysis of the net deficit. Revenue and Expenditure 3 Statement of Revenue and Expenditure ( bn) ( bn) Revenue (583.4) (614.0) Expenditure Net Financing Cost Assets and Liabilities balance Net Deficit Source: WGA , Consolidated Statement of Revenue and Expenditure, p.91 1 Assets are defined as those resources controlled by government from which future revenue can be generated. Liabilities are obligations on government arising from past transactions or events. Each is further divided into current and non-current. Non-current assets are those that will be used continuously and repeatedly for more than one year. Non-current liabilities are those for which the obligation falls after more than one year /11 is used in this context to denote a financial year 3 See Annex, Figure 5 2

3 Revenue 4 Composition billion (83.9%) of the Government s revenues were raised through taxation in the financial year of The most significant element of tax revenue was direct taxation, which made up billion (48.3%) of the Government s total revenues (Figure 1). Income tax raised the largest amount of revenue ( billion) over the same period (Figure 6). Figure 1: Breakdown of Government revenues for the financial year ( billion) Public corporations goods and services, 17.1 Direct, Other - fees, levies, charges, 48.8 Taxes, Other, Local govt. goods and services, 25.4 Central govt. goods and services, 7.3 Indirect, Local govt.,52.8) Source: IfG analysis of WGA ; Notes 3,4 and 5, pp Significant changes Indirect tax revenue has increased by 12.2% ( 18.2 billion) between 31 March 2010 and 31 March 2011 (Figure 2). By comparison, direct taxes have increased by 3.9% ( 11.2 billion). VAT saw the largest absolute increase between the reporting periods ( 12.1 billion), whilst corporation tax demonstrated the largest relative increase (22.8%). Comparatively, income tax increased by only 5.5 billion (3.6%). 4 See Annex, Figures 6 and 7 3

4 Figure 2: Absolute changes in tax revenue over the financial year ( billion) VAT All other Corporation Tax Source: IfG analaysis of WGA , Note 3, p.123 Income tax Capital Gains Tax Inheritance Tax -4.9 Social Security and NHS Council Tax National nondomestic rates Indirect Taxes Direct Taxes Local Government taxes Tax revenue Expenditure 5 Composition The largest government expenditures for the financial year of were on benefits - including the state pension ( billion), staff costs ( billion) and the purchase of goods and services ( billion). Benefits made up 27.2% of all government expenditure, while staff costs made up a further 25.7%. 6 Within benefits, State Pension benefits accounted for by far the largest portion of spending billion was spent on the State Pension and State Pension Credit combined (39.9% of total benefits). Incapacity benefits, Jobseeker s Allowance and Carer s Allowance were the smallest benefit expenditures (Figure 3) The largest individual source of expenditure for this period was billion spent on staff wages and salaries (Figure 8). Significant changes The cost of depreciation and impairments in the Government s asset base increased by 28.8 (55.8%) billion between 1 April 2010 and 31 March Staff costs also grew by 13.4 billion (7.4%) over this period. 11 billion of this increase was due to increased pension costs. 5 See Annex, Figures 8 and 9 6 These calculations exclude adjustments to give a clearer picture of what the Government is spending its money on in the short term. See Net Deficit below for further explanation 7 This large increase was driven by the revaluation of local authorities social housing this was due to the adjustment factor used in calculation being significantly reduced. See WGA p.19 4

5 Figure 3: Total Government expenditure for the financial year - not including adjustments ( billion) Carer's allowance, 1.6 Incapacity benefit, 5.8 Jobseeker's allowance, 6.9 Income support, 8.3 Other, 10.4 Child benefit, Disability living allowance, Tax credit, 28.1 Housing/other local govt, State pension credit, State pension, 74.1 Benefits Staff costs Purchase of goods and services Depreciation and impairments Grants and subsidies Other Provision expense Expenditure % Change since 09/ % +7.4% -1.1% % +3.3% %6% n/a 8 Source: IfG analysis of WGA , Consolidated Statement of Revenue and Expenditure, p. 91, and Note 6, p Provision expense for the financial year is recorded as -17 billion in the WGA. This is because Provision charges are shown net of changes in the amount recoverable from customers (WGA , p.108). A percentage change figure would therefore misrepresent changes to provision expense on the ground. 5

6 Net Deficit The WGA s figures for expenditure in the financial year of include an adjustment of 126 billion, reflecting the change of the inflation rate linked to public sector pensions payments from RPI to CPI (in effect from April 2011). This is recorded as a one-off negative expenditure of 126 billion. This is in line with the presentation of accounts according to International Financial Reporting Standards (IFRS). However, interpretation is crucial here. As Sir Nicholas Macpherson has observed, if you use [these figures] as a measure of what is really going on with the deficit in the short run, it might be slightly misleading. 9 Figure 4 therefore separates out the constituent elements of the net deficit calculation. Figure 4: The Government's net deficit for the financial years of and ( billion) Net Deficit, Total Expenditure, Net Deficit, 94.4 Adjustment, Total Expenditure - excluding adjustment, Total Revenue, Total Revenue, Gap Dummy 2009/ /11 Source: IfG analysis of WGA , Consolidated Statement of Revenue and Expenditure, p.91 9 Sir Nicholas Macpherson, Permanent Secretary to the Treasury, PAC hearing, WGA (11 March 2013) 6

7 Next Steps The next edition of the Whole of Government Accounts will be published in the near future. At this point, The Whitehall Monitor will publish a new bulletin that seeks to analyse trends in light of the data that we already hold. The Whitehall Monitor Annual Report (set for publication in July) will take a closer look at the implications of these insights. The WGA draws attention to the vast assets and liabilities that are under the Government s control. Our report will seek to determine the extent to which these are being effectively managed and controlled. 7

8 Assets and Liabilities Net Financing Cost Expenditure Revenue Institute for Government The Whole of Government Accounts June 2013 Annex Figure 5: Statement of Revenue and Expenditure by sub-type for the Financial Year ( billion) Tax revenue Non-Tax Revenue Benefits Staff costs Purchase of goods and services Depreciation and impairments Grants and subsidies Provision expense Other Expenditure Adjustments Interest on pension scheme liabilities Interest costs on government borrowing and financing Finance charges in respect of finance leases and PFIs Other finance costs Pension scheme investment revenue Expected return on pension scheme assets Net loss on disposal of assets Revaluation of financial assets and liabilities Source: IfG analysis of WGA , Consolidated Statement of Revenue and Expenditure, p.91, and Note 13, p

9 Revenue Non-Tax Revenue Tax revenue Institute for Government The Whole of Government Accounts June 2013 Figure 6: Breakdown of Government revenues for the financial year ( billion) Income tax VAT Social Security and NHS Corporation Tax Council Tax Hydrocarbon Oils Duty Excise Duties National non-domestic rates Lottery income Stamp Duties Capital Gains Tax TV licence fee Inheritance Tax Other (fees, levies, charges) Local govt goods and services Public corporations goods and services Central govt goods and services Source: IfG analysis of WGA , Notes 3, 4 and 5, pp

10 Figure 7: Absolute revenue changes between the financial years of and ( billion) Revenue - 31 March 2011 ( bn) Local Government taxes, 0.70 Indirect Taxes, Direct Taxes, Public corporations goods and services, 1.00 Revenue - 31 March 2010 ( bn) Other (fees, levies, charges), 1.70 Central govt goods and services, 0.7 Local govt goods and services, (2.9) Source: IfG analysis of WGA , Notes 3, 4 and 5, pp

11 Figure 8: Breakdown of Government expenditure for the financial year ( billion) Staff costs - Wages and Salaries Purchase of central govt. goods and services Benefits - State pension Purchase of local govt. goods and services Revenue grants/subsidy Depreciation and impairments of Non-financial assets Staff costs - Pension scheme - current service costs Benefits - Housing/other local govt Benefits - Tax credits Depreciation and impairments of property plant and equipment Benefits - Disability living allowance Other Expenditure Capital grants Staff costs - Staff pension costs Benefits - Child benefit Staff costs - Social security costs Benefits - Other Benefits Benefits - Income support Benefits - State pension credit Purchase of central public corporations goods and services Benefits - Jobseeker's allowance Depreciation and impairments of financial assets Benefits - Incapacity benefit Depreciation and impairments of receivables Depreciation and impairments of intangible fixed assets Benefits - Carer's allowance Staff costs - Pension scheme - losses on settlements Staff costs - Intra-governmental balance (subtracted) Pension past service costs and indexation adjustment Source: IfG analysis of WGA , Notes 6, 7, 8, 9, 10 and 11, pp

12 Figure 9: Absolute expenditure changes (excluding adjustments) between the financial years of and ( billion) Expenditure, 31 March 2011 Grants and subsidies, 2.20 Benefits, 6.90 Staff costs, Depreciation and impairments, Provision expense, Expenditure, 31 March 2010 Purchase of goods and services (1.70) Other (0.50) Source: IfG analysis of WGA , Consolidated Statement of Revenue and Expenditure 12