More than just counting numbers: Following the publication of its Green Paper, the Government plans to introduce resource accounting into the public sector. Paul Gosling reports
Wednesday 26 October 1994
For the first time since the Green Paper was published in July, a government minister - Paymaster General, David Heathcoat-Amory - together with the main author of the Green Paper, Richard Allen, under-secretary at the Treasury, will be speaking about the new accounting regime when they address today's Chartered Institute of Public Finance and Accountancy conference.
Resource accounting - or accruals accounting as it is called in the private sector - will replace cash accounting in all government departments by the 1999/2000 year, and will be introduced into all departments by 1 April 1998.
It has already been adopted in executive agencies, the NHS and local government.
It may amaze private sector accountants, but traditionally public bodies have not recorded depreciation in their accounts, and capital spending has been treated almost identically to revenue expenditure. The real cost of retaining fixed assets, such as buildings and land, has never been shown in accounts, and the end of each financial year can see a massive binge to avoid a year-end surplus and thus a reduction in the next year's budget.
While management has been generally positive about the introduction of accruals, there has been some resistance. While resource accounting does show a truer picture, its accuracy depends on the assumptions made, such as the rate of depreciation used or the valuation of fixed assets, and can, accordingly, be more easily manipulated.
Public borrowing policy could be changed, believes Martin Evans, the head of Cipfa's technical and research division. Gearing - the ratio of borrowing to the value of assets - could become clear for the first time in the public sector, he says.
'Borrowing to fund the deficit on the revenue account is a quite different proposition from borrowing to finance investment in assets that will benefit generations to come,' Mr Evans argues. 'The proposed new system of accounting will for the first time provide public policy makers with information which can better inform the debate and choices about public expenditure and its financing.'
Mr Evans believes that the potential benefits will only be realised if management understands that resource accounting is a tool which needs to be properly understood and applied. 'It is fairly straightforward in accountancy terms, but it is the management questions that really need addressing,' he says. 'It's about producing information - and what managers do with that information is the important thing. As you change management styles you need to change accounting practices. It's not about counting numbers. It will highlight subsidies.'
For both politicians and managers, resource accounting will mean concentrating on outputs, not inputs. In New Zealand, which first introduced accruals into public services, parliament now approves budgets related to the services provided, not to the departments which provide them. This creates an internal market, where departments may compete to produce the most cost-effective result.
Resource accounting could also lead to a boost in the Government's drive to dispose of surplus assets. As Mr Evans explains: 'The benefit of accrual accounting is that it confronts service managers with the real cost of holding and using assets. Once managers have to pay for the assets they use, they may begin to question whether they need them, or whether they can use them in a more efficient way. So long as assets are free, managers have no incentive to ask these questions.'
Francis Plowden, the partner responsible for government work at Coopers & Lybrand, sponsor of the conference, is to say today that the introduction of accruals accounting is a significant step towards completing the public services revolution.
Core departments are still weak in strategic management, performance targets and indicators are inadequate, and the new management approach has yet to transform core government departments and non-departmental public bodies, argues Mr Plowden. The introduction of accruals should help address all these issues.
For resource accounting and budgeting to work, Government and core departments will need to be less prescriptive, suggests Mr Plowden. 'This will raise some difficult questions at the boundary between officials and ministers.
'Ministers are the ultimate decision makers, and they will be in a position to thwart the change of management culture, which they want to see, if the output-based approach does not inform their thinking on resource allocation as well,' says Mr Plowden.
Martin Pfleger, assistant auditor general at the National Audit Office (NAO), is among the other speakers, and he is expected to concentrate on the need to sell the advantages of resource accounting to Parliament, rather than allow benefits only to be felt by management and Government.
While the NAO supports the move to accruals, it is worried that the Green Paper fails to explain how resource budgeting will affect Parliament. Some MPs are nervous that while it could lead to their playing an increased role, it could just as easily be used to sideline them, allowing greater power to lie in the hands of the executive. This will be determined by the detail to be put forward by the Treasury, which was absent in the Green Paper.
'There is a job to be done by the Treasury to persuade Parliament that there is something in it for them,' says Joe Cavanagh, director of the NAO. 'It is rather taken for granted. We will be advising the Public Accounts Committee (of the House of Commons) towards the end of the year. The Treasury will need to persuade the PAC. The Green Paper says nothing about resource budgeting and how it would affect Parliament.'
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Universities aren't working us hard enough, say undergraduates
- 2 Lego letter from the 1970s still offers a powerful message to parents 40 years later
- 3 To help fuel their propaganda machine against the poor, our government has now decided to redefine the word 'welfare'
- 4 Woman opens professional cuddling shop – gets 10,000 customers in first week
- 5 Grayson Perry: London needs affordable housing because 'rich people don't create culture'
Rochester by-election: Ukip gains second MP as Tory defector Mark Reckless holds seat
'Beast of Bolsover' Dennis Skinner takes Ukip MP Mark Reckless to task moments after he is sworn in
Rochester by-election: Labour MP Emily Thornberry resigns after posting white van and England flags tweet
France 'blocks' Russian sailors from boarding a warship
Rochester aftermath: Sacking of Emily Thornberry will make work of Labour MPs '10 times harder'
Revealed: How the world gets rich – from privatising British public services
iJobs Money & Business
Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...
Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...
£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...
Day In a Page
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens