Plans to introduce Resource Accounting and Budgeting across Government departments are on schedule for the year 2000. Budgets will apply to the year starting on 1 April 2001. Executive Agencies, the NHS and local authorities already operate Resource Accounting. The latest milestone in moving towards the change is the approval of the Treasury Resource Accounting manual which will provide guidance on the procedures. Approval was given by the independent Financial Reporting Advisory Board.Departments currently plan and account for expenditure on a cash basis. This system of accounting has been in use since the mid-19th century and it ensures that Departments work within cash budgets, but it fails to take account of the capital aspects and consumption of resources. Resource Accounting covers a set of accruals accounting techniques for reporting on expenditure. Adoption of the techniques will allow departments to link the full cost of resources consumed to their objectives and outputs. The further step to Resource Budgeting will change the public expenditure control total to an accruals basis.
The reform of Government accounting was announced in 1995 in a White Paper – Better Accounting for Taxpayers Money. The aim of the reform is to bring procedures into line with best private sector practice and so get a better measure of the cost of the activities of central Government departments and of their assets and their liabilities.
Accrual accounting is the common accounting practice in the commercial sector. It means that expenditure and income are accounted for in the year in which they were incurred or earned rather than when cash actually passed hands. In particular the cost of using fixed assets in any year will include its depreciation. This will improve the way the Government accounts for how taxpayers’ money has been spent, bringing it into line with best private sector practice.
Chief Secretary Alistair Darling said : ” This is the greatest reform to the public finances in over 100 years. Resource accounting is an important development in getting best value for money for the taxpayer. It will provide a better measure of the cost of the activities of central Government departments, and of their assets and liabilities. Resource budgeting will then build on that and improve the way in which we plan and control Government spending.