Brexit shock could see balance sheet "liabilities" hit growth, watchdog warns
A major economic shock caused by Brexit could see “significant liabilities” on the Government's balance sheet “crystallise” and hit economic growth, the Whitehall spending watchdog has warned.
A major economic shock caused by Brexit could see “significant liabilities” on the Government's balance sheet “crystallise” and hit economic growth, the Whitehall spending watchdog has warned.
The Commons Public Accounts Committee (PAC) said provisions liabilities had increased by 71% and contingent liabilities - possible future financial obligations for the Government - by 85% since 2009-10.
The committee said the Government is increasingly using its credit rating to issue guarantees, and by the end of March 2015 had committed #18 billion to “significant” guarantee schemes against a potential exposure of £100 billion.
“A major economic shock could cause these liabilities to crystallise and the Government's ability to meet these costs would also depend on economic growth,” the group of MPs warned in their analysis of the public balance sheet.
“It is unclear in the WGA (Whole Government Accounts) what the impact might be if these liabilities were to crystallise but the International Monetary Fund's analysis shows that it could be equivalent to around 10% of gross domestic product.
“HM Treasury told us that they expect a negative economic shock due to Brexit and that the potential impact on public finances will be seen in the OBR's (Office for Budget Responsibility) forecast in the autumn and in its first fiscal risk statement in 2017.”
The committee called on the Treasury to develop contingency plans for public liabilities which will be most affected by a downturn.
It also highlighted the Government's continually-rising liabilities for clinical negligence claims - provisions liabilities doubling to £28 billion and contingent liabilities for cases where the likelihood or amount of payment is less certain increasing by 87% to £14 billion over the last six years.
The MPs said: “We are concerned that the Government's failure to admit liability in a timely way for individual cases could be driving up costs and note HM Treasury's estimate that some legal costs can be three times more than the compensation received: a problem first highlighted by the Committee of Public Accounts in 2002.”
PAC chairman Meg Hillier said: “While the Whole of Government Accounts provide valuable insights, there is scope to improve the speed with which they are published and their ease of use.
“We are also concerned the Government is not doing enough to address risks highlighted by the WGA, for example its increasing liability for clinical negligence claims - the potential cost of which will be borne by the taxpayer.
“The Treasury needs to act now to get a grip on such growing liabilities and they must not be allowed to fester on the balance sheet.
“More broadly, the WGA shed light on patterns of spending by Government departments within given financial years - patterns which in some instances reflect a short-term approach to the spending of public funds.
“Clearly, this is not compatible with a value-for-money approach to spending taxpayers' money on complex projects that may run for many years.
“There is still much to do before Parliament and the public can be confident long-term financial planning is properly factored into political decisions and in the coming months the Treasury must set out its plans for achieving this.
“In particular it must demonstrate it is prepared for the very serious challenges of Brexit and put in place robust plans to safeguard public money from economic risks arising in the months and years ahead.”