MPs staggered by £10.9bn tax black hole

The Commons Public Accounts Committee (PAC) has described government estimates showing £10.9bn written off in unpaid tax as staggering in a recent report.

The committee’s report on the new Whole of Government Accounts (WGA) for 2009-10 criticised the Treasury after the department admitted it was 'surprised' to learn about the figures.

“We were surprised to find that the Treasury did not have a grip on trends in some key areas of risk or plans for managing them,” the MPs concluded.

Margaret Hodge, chair of the committee, said the WGA has revealed some “staggering numbers” and that this was the first time Treasury officials, ministers, MPs and the public had been able to look at the total cost.

She added that the Treasury had departed from accounting standards by leaving out of the accounts such bodies as Network Rail and the publicly owned bank, leading to the accounts being qualified by the National Audit Office.

Amyas Morse, comptroller and auditor general at the NAO, said in the WGA: “The external auditor of some 16 bodies included in the WGA, qualified their audit opinions owing to the material existence of irregular spending; that is using resources not in accordance with Parliamentary intentions. Of these, two are of significance to the WGA. These cover error and fraud in benefit payments and tax credit payments.”

The 16 qualified accounts amounted to just over 1% of the 1,500 accounts reviewed, but included some very high profile central departments, including HMRC, which had problems with data quality and tax credit errors and fraud. Also qualified were: 

• Ministry of Defence, for several significant internal control issues covering payroll and inventory
• Department for Work and Pensions, for internal control issues around benefit fraud, social fund accounts, debt recovery, NI recoding and accounting issues at the Child Maintenance Enforcement Commission
• Department for Food and Rural Affairs - weaknesses at the Rural Payments Agency

Steven Corbishley, National Audit Office director leading the external audit of the WGA, commented on why the likes of the Bank of England and Network Rail were not included in the scope of the recently published accounts.

“We consider that an accounting basis, using properly accepted accounting principles and standards, should be your starting point for deciding which bodies fall within the WGA, not a statistical basis. The Treasury in compiling this set of accounts in future should use accounting standards to gain the fullest possible picture of the financial position of the nation.”

“We disagree with the way the Treasury in principle, and then in practice, has drawn their own boundaries for the WGA purposes.”

The PAC criticised the Treasury for providing figures that were out of date due the 20 months it took to get them published  - twice as long as in other countries such as France and the US.

James E Barbour, technical policy director at ICAS, said: “The publication of the WGA is a major step in the right direction and results in increased transparency of the UK'S financial position - this has to be welcomed. We do however note that there are a number of areas for improvement as indicated by the content of the audit report. Additionally, the production timetable for producing  such accounts has to be significantly shortened and we would anticipate that this will be the case in the years to come."

Hodge added that the WGA document “currently falls short of giving a true and fair view of the UK's financial position”.

MPs also pointed out that because of inconsistency and volatility in the rates used to calculate the present value of future money, calculating long-term costs in today's money was imprecise