This presentation was made by Graham Prenctice & Richard Hughes, United Kingdom, at the 19th OECD Senior Financial Management and Reporting Officials Symposium held at the OECD Conference Centre, Paris, on 4-5 March 2019

1. Update on the UK’s balance sheet review
Richard Hughes and Graham Prentice

2. 1. Context: the nature of the UK’s balance sheet changed
substantially since the 2008/2009 Global Financial Crisis
2
UK Public Sector Assets, Liabilities, and Net Worth, % of GDP
Source: IMF

3. 2. The Balance Sheet Review (BSR) was launched at
Budget 2017
3

4. 3. After one year, Budget 2018 provided an update
on BSR progress
4
BSR
Update
Budget
2018
Intangible
assets
Property
Debt owed
to Govt
Asset
sales
and loans
Balance
Sheet
Reporting
Controlling
contingent
liabilities
Reducing
inflation
exposure
Retiring
PFI
• First-ever geo-spatial Digital
National Asset Register
• London estate on single balance
sheet within 5 years
• New debt management
targets and measures on
overdue debt, debt
management strategies and
risk to be implemented in
2019-20 budgeting guidance
• continued use of central
debt integrator
• Reduce the proportion of
index-linked gilt issuance
• Interest on Index-linked
Savings Certificates from
May 2019 based on CPI
rather than RPI
• Stricter new controls over
issuances of guarantees &
contingent liabilities
• Exploring options to improve
incentives & compensation on
insurance to the private sector
• Stricter disclosure
requirements for asset sales
• Revised budgetary treatment
for financial transactions
• Regular statistical reporting
of the entire balance sheet
• Retiring the Private
Finance Initiative
• New centre of best
practice in Health
Ministry
• Report: Getting Smarter about IP and other knowledge assets in the Public Sector
• Estimated £150bn could be recognised

5. 5
3.1 The UK has made significant progress in reducing
inflation exposure
Share of Inflation-Linked Debt
(G7 Countries, Latest Year)
UK Inflation-Linked Debt Stock under
Alternative Issuance Assumptions
Source: HMT

6. 3.2 The 2018 Budget also announced the retirement of
the Private Finance Initiative (PFI)
6
Source: NAO
There are three main reasons to retire PFI
PFI tended to be more
expensive over the life of the
contract.
This was masked because it
was off-balance-sheet.
1.Long-run cost
The nature of the contracts
meant less flexibility to adapt
to changing service needs.
2.Flexibility
The OBR described PFI as a
“fiscal illusion”.
Retiring it will increase fiscal
transparency.
3.Transparency
Comparative cost of PFI
0m
50m
100m
150m
200m
250m
300m
350m
2010 2020 2030 2040 2050
Cumulativecost(£)
PF2 unitary charges
Conventional financing
The cumulative cash costs of a group of PF2 schools
PFI is a method of providing funds for major capital investments, where private firms are contracted to complete and
manage public projects.

7. 3.3.1 Under-recorded an under-exploited: knowledge
assets
• Less likely to be recognised under
accounting definitions
Software
licences
Patents • Know-how
• Skills
• Ideas
• Innovation
• Training
Methodologies &
standards
Trademarks &
brands
Data &
Analytics
Development
costs
• More likely to be recognised under
accounting definitions
+
UK public sector: “Net exporter of ideas”
5 offices
around the
world

8. 3.3.2 Knowledge assets have had limited recognition on
the public sector balance sheet
SPINTAN estimates: £150bnIntangibles on Whole of Government
Accounts represent 2% of total assets
£150bn
£34bn
Returns on investment @
3%+ p.a.

9. 3.3.3 Barriers: managing knowledge assets is more
complex than traditional asset classes
Identification Insight Infrastructure Incentives Investment
Public sector
bodies often do
not know what
IP they hold or
how it is valued
Asset
valuations
volatile – and
depend on how
IP is applied
Lack of
technical, legal
and
commercial
expertise to
develop, protect
and exploit
Limited central
support
Limited
incentives for
organisations
and individuals
in the public
sector
- invest
- generate
- exploit
Budgeting
system does
not always
support long-
term &
speculative
investment
Next step: implementation plan to address the barriers

10. Opening
Balance Sheet
(bn)
Transactions
(bn)
Other Economic
Flows (OEF)
(bn)
Closing
Balance Sheet
(bn)
Revenue
Holding
Gains
Other
Volume
Changes
-
Expense
=
Net Worth +
Net Operating
Balance
+
Change in Net Worth
due to OEF
= Net Worth
= = = =
Non-financial
Assets
Non-financial
Assets
Non-financial Assets
Non-financial
Assets
+ + + +
Net Financial
Worth
+ Net Borrowing +
Change in Net
Financial Worth due
to OEF
=
Net Financial
Worth
= = = =
Financial
Assets
Financial Assets Financial Assets
Financial
Assets
- - - -
Liabilities Liabilities Liabilities Liabilities
3.4 Improving balance sheet reporting
10
• In Nov. 2018, the OBR (UK’s
Fiscal Council) started
publishing detailed forecast for
the government’s financial
balance sheet over the next
five years.
• The UK has committed to
complying with the IMF’s
Government Financial
Statistics Manual, which
requires regular statistical
reporting of the entire balance
sheet, starting in spring 2019.
• Quarterly reporting of the
balance sheet will help inform
policy decisions.
New national accounts statistical tables based on a GFSM approach