The macro-fiscal role of the U.K. Whole of Government Account

The U.K.Whole of Government Account (WGA) has been conceived by
the Treasury as having a macro-fiscal role. This WGA is about fiscal transparency
at the aggregate level, rather than at a more disaggregated level
with regard to public sector decision makers at tiers of government, each
with their own chain of accountability. This paper analyses the U.K. conception
of the WGA, examining its theoretical background and evolution
since the 1995 decision to convert central government accounting from
cash to accruals.The definition of the area of consolidation is governed by
statute, the declared intention being to align as far as possible with the
national accounts definitions that provide the basis for fiscal aggregates,
thereby overriding IAS 27. Net liabilities per WGA is mapped in this paper
to macro-fiscal aggregates, including public sector net debt (the U.K. preferred
measure), general government gross debt (the EU preferred
measure) and public sector net worth (national accounts). Conceptually,
theWGA measure is situated between net debt (against which only liquid
assets are netted) and the long-term cash projections developed by the
Treasury. Insights are provided into the damage inflicted on U.K. public
finances by a period of over-optimism about fiscal performance and the
economy’s heavy exposure to the global financial crisis. Fiscal retrenchment
in all countries can have a substantial illusory component, as proposals
may reduce some measures of deficit and debt at the expense of the
public sector balance sheet, to which the WGA draws attention. These
measures may include: privatizing state assets; neglecting existing public
sector assets; cutting public sector capital expenditure; substituting public–
private partnerships for conventional procurement; and posting bills to the
future. The U.K. WGA may also institutionalize some protection against
accounting arbitrage that distorts policy choices and fiscal reporting. Well-documented reconciliations between figures derived from national
accounts and from IFRS-based financial reporting are therefore imperative
for fiscal transparency.