Better Accounting for the Taxpayer's Money

The Government's Proposals

Resource Accounting and Budgeting in Government

Presented to Parliament by the Chancellor of the Exchequer by Command of Her Majesty, July 1995

This Internet version includes a Foreword by the Chancellor of the Exchequer and an Executive Summary. The full version is available as a White Paper Cm 2929 ISBN 0-10-129292-9

FOREWORD

This White Paper describes the progress we have made in developing resource accounting and the Government's proposals to introduce resource budgeting. I am grateful for the many comments received during the consultation period following publication of the Green Paper on Resource Accounting and Budgeting last July. They have shown overwhelming support for the broad principles of resource accounting and budgeting from Parliamentary colleagues, the accountancy profession and the other interested groups.

We are maintaining the course I charted in the Green Paper to introduce resource accounting across Government by 1998 and resource budgeting in 2000. This development will be a major change in the way we plan, control and account for public expenditure, and will come to be seen as a milestone in modernising the state.

By:

focusing more on resources consumed and not just on cash spent
treating capital and current expenditure in a way which better reflects their economic significance
encouraging the discipline of a greater emphasis on outputs and the achievement of aims and objectives;

we have the chance to make better informed decisions about overall public spending priorities, within the overall context of the Government's macroeconomic objectives. These ideas also offer Parliament more appropriate information from the Executive, and improvements to the way in which it approves spending by departments. If the Government's proposals are accepted, Parliamentary approval will be aligned more closely with the new arrangements for planning, managing and controlling spending within departments. This would further enhance the new system, and the benefits in terms of better value for money which it is designed to secure.

This impetus for better management and better value for money must be seen in conjunction with other Civil Service reforms such as proposals on the use of Efficiency Plans in the Civil Service White Paper "Continuity and Change". A similar theme emerges from the recent Efficiency Unit scrutiny report on Resource Management Systems. The Government remains committed to continuing and increasing improvement in public sector efficiency and effectiveness.

The proposals in this White Paper take that theme further forward. The result will be better management of public spending, with improvements for the taxpayer and the economy as a whole.

Kenneth Clarke

EXECUTIVE SUMMARY

The Government's proposals for resource accounting and budgeting were announced in a Green Paper (Cm 2626). There has been keen interest during the consultation period and the Government is grateful for the responses. All supported the introduction of resource accounting and budgeting (subject to some understandable reservations about the implications for Parliamentary approval of expenditure). The responses have helped to resolve some outstanding resource accounting issues.

The Government has decided to go ahead with resource budgeting. This will mean changes to the way in which public expenditure is planned and controlled:

each department will have an accruals-based resource budget and associated departmental financing requirement;
overall public spending will be controlled through a Resource Control Total, with an associated Total Financing Requirement;
departments will produce more systematic analyses of their aims, objectives and outputs;
there will be a better treatment of capital, with charges for depreciation and cost of capital to encourage its more efficient use;
in-year controls will be the minimum necessary to ensure plans are reflected in expenditure, with a framework tailored to suit departmental circumstances which will allow the maximum flexibility consistent with delivering the overall totals.

The Government believes that this new control system will yield considerable microeconomic benefits while continuing to deliver its macroeconomic targets.

In order to align Supply with the planning processes, the Government is proposing (and will wish to discuss with Parliament) changes to the way Parliament is asked to approve expenditure.Under these proposals:

Appropriation Accounts would be replaced by a Resource Account for each department;
Supply Estimates - one for each department - would present any detailed information in resource terms,with an associated single aggregate cash requirement;
there would be a need to agree with Parliament transitional arrangements for a move to resource-based Estimates.

The Government will seek legislative approval for these changes as necessary. There will also be a review of the financial documents presented to Parliament, as requested by the Treasury and Civil Service Committee (TCSC).

Building on suggestions by several commentators during the consultation period, a Financial Reporting Advisory Board to the Treasury will be set up to advise HM Treasury on the application of accounting principles and standards to resource accounting financial reporting requirements.

Resource accounts will be based on UK Generally Accepted Accounting Practice (GAAP) adapted where appropriate to take account of the public sector context.

A draft Summary of Accounting Policies is also being issued. The resource accounting reference manual proposed in the Green Paper will be in two parts: the summary of accounting policies and a detailed code of practice. It will be presented to the Advisory Board when it is set up.

Departments are proceeding with the implementation of resource accounting according to the timetable set out in Green Paper.