Between our 2017 FRR and our 2019 FRR the Government undertook a number of initiatives to deepen its risk management. This box summarised these changes.
The Treasury’s approach to risk management remains broadly the same as two years ago: a number of internal management groups sit beneath its ‘Fiscal Risks Group’ and a spending control framework makes accounting officers responsible for remaining within spending limits. But several initiatives, including those pursued as part of the Treasury’s ‘Balance Sheet Review’ (BSR), have deepened these arrangements. These include:
- The Treasury has issued new guidance on disclosing the fiscal impact of asset sales on the deficit and a variety of balance sheet measures. This might reduce the focus on PSND, which suffers from fiscal illusions in respect of asset sales because the proceeds net off whereas the asset being sold does not, so the balance sheet appears to improve.
- BSR work to identify government assets, dispose of those no longer required and increase the utilisation or returns on those that remain.
- Stricter controls on the creation of new contingent liabilities have been introduced, with greater scrutiny of new liabilities and greater emphasis on government being compensated for taking on risk. The Treasury plans to introduce greater oversight of the stock of existing contingent liabilities as its next step in this process.
- Steps have been taken to reduce the growth in clinical negligence claims, which the Whole of Government Accounts identifies as the fastest growing contingent liability. One such step is the production of a new patient safety strategy by the NHS.
- BSR work on intangible assets, including the publication of a report at Budget 2018 and the establishment of a knowledge assets team in the Treasury. We look more closely at intangible assets in Chapter 6.
- The Government publishes its risk management concepts and principles in the ‘Orange Book’. The Government Finance Function has published an updated version in July 2019. The Government wants risk management to become more integral to departmental planning, including via revised Single Departmental Plan guidance, the design of Spending Review guidance and enhanced risk disclosures in Annual Reports.
We have a particular interest in the Treasury’s work to investigate the stock of contingent liabilities. It would be useful for the Whole of Government Accounts to include more systematic information of the nature of the stock of contingent liabilities and the public sector’s ultimate exposure to different sources of underlying risk.