The UK public spending watchdog has refused to sign off the government’s overarching public sector accounts for the first time because of the huge number of local authorities that failed to provide audited accounts.
The National Audit Office said it had taken the unprecedented step after just 10 per cent of England’s 426 local authorities submitted reliable data for the UK ‘‘whole of government accounts” for the 2022-23 financial year, which were published on Tuesday.
The WGA covers more than 10,000 public sector organisations — including local councils, police, fire and waste authorities, as well as national parks — and provides a “comprehensive, accounts-based picture of the financial position of the UK”, according to the Treasury.
But NAO head Gareth Davies said the gaps in the accounts were so “material and pervasive” that he was unable to give them a clean bill of health.
The gaps included missing data on £134bn of property, plant and equipment, including infrastructure assets and buildings, £105bn worth of net public sector pension liabilities and £26bn in staff costs.
“It is clearly not acceptable that delays in audited accounts for English local authorities have made it impossible for me to provide assurance on the whole of government accounts for 2022-23,” Davies added in a statement.
The Treasury said in the WGA documents that the NAO’s decision did not invalidate the accounts, but reflected the fact that it was impossible for Davies to form an audit opinion “in line with International Standards on Auditing (ISAs)”.
In a separate statement, the finance ministry said the WGA “remains a valuable and reliable source of information for a wide range of stakeholders”,
“We are working with local authorities to improve reporting and transparency and ensure the accounts are as detailed as possible, while making significant additional disclosures to the NAO to address any missing data,” it added.
However, experts warned that the gaps in the accounts would make economic forecasting more difficult following chancellor Rachel Reeves’ decision to set fiscal targets based on public sector net financial liabilities.
The new gauge includes the assets and liabilities held by local government pension schemes.
Ben Zaranko, associate director of the Institute for Fiscal Studies think-tank, said problems with local government audit meant forecasters could expect estimates of these assets and liabilities to continue to be subject to large revisions.
“[This would make] life harder for the Office for Budget Responsibility and potentially [add] to the volatility of their forecasts. When tax and spending decisions are made on the basis of those forecasts, this matters a great deal,” he added.
In March, the Local Government Association, which speaks for councils, described the reasons for the backlog as “multi-faceted and complex”. It noted that delays had been caused in part by the Covid-19 pandemic and the increasingly complex way in which local authorities managed and valued their assets.
The public sector audit backlog has grown sharply in recent years. Some 155 entities failed to submit data to the WGA in 2020-21, up from just 21 in 2019-20. The number rose to 178 in 2021-22 and to 211 for the latest set of accounts for 2022-23.
Davies said a government plan to clear the backlog by forcing councils to submit accounts by specific deadlines — even if their auditors were not fully satisfied — was “likely” to leave the NAO unable to sign off the WGA in future years too.
The availability of specialised local government auditors has become increasingly constrained since the state-run Audit Commission was abolished in 2015, leaving councils to appoint private firms instead.
The backlog has hit English local authorities far more severely than Scotland and Wales, where the devolved governments have their own state-run auditors.
Last year, the influential House of Commons public accounts committee said the resulting backlog could have consequences for central government and the NHS, warning that the system was “close to breaking point”.
Sir Geoffrey Clifton-Brown, current PAC chair, said it was “deeply unsatisfactory” that the NAO could now not formally vouch for the national accounts.
“If these issues are not addressed, it will become increasingly difficult to hold local leaders to account and more horror stories of failing councils will follow,” he added.
The NAO said that only 43 of England’s 426 local authorities had submitted “reliable data” to the WGA. A total of 196 submitted information that had not been audited and 187 had failed to submit any data at all.
Grant Thornton UK, a leading provider of audit services to local government, said it was continuing to work with the watchdog to implement the government’s plans to clear the backlog.
The company said in a statement that a variety of factors were to blame, including “accounts not being provided for audit, financial sustainability issues or significant technical accounting matters”.
Speaking at Labour party conference in September, local government minister Jim McMahon said being unable to account for billions of pounds in public spending was not a sustainable position.
“It’s not great for local government,” he said, adding: “It’s worse for national government, as it can’t balance its own books on the back end of it.”