HM Treasury needs to tighten its controls and provide clear guidance on how the government manages hundreds of billions in private sector loans and business investments, or risk destabilising public finances and increasing national debt, according to a new report from the National Audit Office.

When the government makes loans to the private sector or takes equity stakes in businesses, these are called financial transactions. The portfolio stood at £203 billion in 2024, with Labour planning to spend a further £23.8 billion on them between 2025-26 and 2029-30.

While the government intends to use this huge portfolio of FTs to support growth and boost the national coffers, the NAO warned that the Financial Transaction Control Framework, essentially the rulebook for ensuring these investments are handled safely, remains a “work in progress”.

Published alongside the Autumn 2024 Budget, the Framework sets out the requirements for managing and reporting on FTs to ensure they support sustainable public finances, with the government having designated five public financial institutions to establish and manage most FTs on its behalf.

The NAO said that although these organisations, together with HM Treasury and UK Government Investments (UKGI), have begun implementing some of the key principles underpinning the Framework, the Treasury has yet to identify the main risks or produce clear guidelines on the use of FTs.

According to the report, this has led different departments and public financial bodies to follow different standards, leaving civil servants across government unsure how to work together in practice.  

Worse, the NAO said that when the Treasury chose the five original public financial institutions to manage these investments, three did not meet the Framework’s criteria, with the process still lacking transparency and minimum standards.

The NAO added that the Treasury hasn’t explained how it plans to roll out the Framework or measure progress, and that it remains unclear who is responsible for policing compliance. 

Meanwhile, UKGI has pointed to an overreliance on inaccurate, historic data within the FT portfolio, limiting both real-time management and governance over decision-making.

Until the government begins to apply the Framework’s principles consistently and strengthens the process and management of FTs, the value of public investments, and ultimately, taxpayers’ money, is more at risk than it should be.

“Recognising the value of government’s financial assets is a welcome innovation. However, these investments may put public money at unnecessary risk if the government does not manage them well,” said Sir Geoffrey Clifton-Brown MP, Chair of the Committee of Public Accounts.

“Despite the Financial Transaction Control Framework being in place for over a year, key elements remain a work in progress. Staff working in public financial institutions and departments have noted the lack of clear, practical guidance, and HM Treasury is yet to carry out a formal assessment of the main risks.

“Full implementation of the framework will be necessary to help manage these investments effectively and sustainably, protecting the taxpayers’ money that is used to fund them.”

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To help get the most value for both taxpayers and the government out of the Framework, the NAO recommends that the Treasury should set out a clear plan for completing its rollout; work with risk experts to strengthen the rules; create a simple, proportionate system for checking compliance, and formalise how public financial institutions are chosen.

“Implementing the Financial Transaction Control Framework in full will allow the government to strengthen financial management, support the effective use of FTs to achieve policy objectives, and protect the value for money of taxpayer-funded investment,” said  Gareth Davies, head of the NAO.