HM Treasury has published its 2024-25 accounts. Gareth Davies, the Comptroller and Auditor General (C&AG), has issued a clean audit opinion, providing assurance to Parliament on the financial statements.

Here we share highlights from his audit certificate. You can read the full certificate and report on the accounts in context in HM Treasury’s annual report and accounts.

Opinion on financial statements

In my opinion, the financial statements:

  • give a true and fair view of the state of HM Treasury and the Departmental Group’s affairs as at 31 March 2025 and their net expenditure for the year then ended; and
  • have been properly prepared in accordance with the Government Resources and Accounts Act 2000 and HM Treasury directions issued thereunder.

Opinion on regularity

In my opinion, in all material respects:

  • the Statement of Outturn against Parliamentary Supply properly presents the outturn against voted Parliamentary control totals for the year ended 31 March 2025 and shows that those totals have not been exceeded; and
  • the income and expenditure recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

Key audit matters

EU Financial Settlement

Description of risk

The UK left the European Union (EU) on 31 January 2020 under terms defined by the Withdrawal Agreement. The Agreement includes a Financial Settlement and sets out the various rights and obligations of the UK and EU during the transition period and beyond. These include financial rights and obligations that fall to HM Treasury. The transition period ended on 31 December 2020. Key judgements and sensitivities are disclosed in note 15 – EU Financial Settlement. I have identified a significant risk of material misstatement in HM Treasury accounts because of the underlying complexity and sensitivity of judgements surrounding interpretation of the Withdrawal Agreement. I consider this area to be a key audit matter.

The specific areas of risk identified by my audit are:

  • Classification: HM Treasury receives invoices and reporting from the European Commission, in accordance with the terms of the Withdrawal Agreement. If HM Treasury does not sufficiently scrutinise EU data and understand the Commission’s process for classification, or identify where changes in circumstances affect classification, and assess against International Financial Reporting Standards (IFRS) requirements, there is a risk of subsequent misclassification in HM Treasury’s accounts. Separately, there is a risk that balances in the accounts are misclassified where invoiced amounts to be paid are known at year end or subsequent to the reporting date;
  • Valuation: the valuation of items arising from the Withdrawal Agreement requires the use of different estimation techniques, with varying degrees of complexity, that utilise a range of inputs and assumptions with differing degrees of sensitivity. For some of these estimates, there is a high level of estimation uncertainty and input data has to be derived from limited sources. Reports received from the European Commission, in accordance with the requirements of the Withdrawal Agreement, may also provide additional information over time that HM Treasury will need to consider when preparing these estimates. Due to non-coterminous reporting periods, there is a risk HM Treasury will not obtain data from the European Commission in time or obtain sufficient assurance over the completeness and accuracy of these reports. Additionally, there is a risk that some of the data being relied upon to derive assumptions will become outdated or may no longer be fit for purpose.
  • Disclosures: there is a risk that the estimation uncertainty and other disclosures for fair value measurements and other balances are not sufficient or accurate, due to the risks of using inappropriate methodologies, assumptions or data sources. There is also a risk of insufficient disclosure if information received after the reporting date, such as the publication of the European Commission’s annual accounts, provides additional evidence in relation to events or conditions in existence at 31 March; and
  • Regularity: HM Treasury is making payments to the European Commission under the Withdrawal Agreement with limited visibility over the underlying data underpinning the transaction value. I have identified a risk that HM Treasury needs to obtain sufficient assurance over the amounts to confirm these are in line with the framework of authorities.

Key observations

I did not identify any significant misstatements as a result of the work I have performed over the:

  • amounts recognised within the financial statements; and
  • measurement of assets and liabilities within the HM Treasury and Departmental Group accounts identified in the Withdrawal Agreement.

I have found that the models prepared by management use appropriate input data and apply reasonable and appropriate measurement techniques based on the data available. HM Treasury has used the discount rates mandated by the Government Financial Reporting Manual, the basis for which is explained in note 15. Future cash flows are denominated in Euros and, therefore, valuations are particularly sensitive to future change in exchange rate. This is also explained in note 15.

I note that the nature of the data available to HM Treasury in estimating the value of assets and liabilities has limitations that require management to make significant judgements, including estimating the level of funds currently committed to programmes which will not be fully implemented (the decommitment rate).

This, together with the long term and forward-looking nature of the estimates involved, heightens the level of uncertainty in the valuation.

I have found HM Treasury’s disclosures on estimation uncertainty and other disclosures for fair value measurements and other balances to be sufficient and accurate.

I am content that the amounts paid over to the European Commission have been calculated and paid in line with the Withdrawal Agreement, noting the presence and operation of a subsequent ‘truing up’ mechanism.

Bank of England Asset Purchase Facility Fund (BEAPFF) derivative valuation

Description of risk

HM Treasury provides an indemnity to the BEAPFF over its functions as a holding vehicle for debt securities purchased under the Quantitative Easing programme. Under this agreement, any losses incurred by BEAPFF on these assets are indemnified by HM Treasury, while any gains accrue to HM Treasury. This indemnity is therefore recognised as a derivative financial liability and, as presented in note 13 – Derivatives, was valued at £173.4bn at 31 March 2024. As at 31 March 2025, this liability position had decreased to £171.9bn.

The BEAPFF prepares its financial statements to 28 February, one month before HM Treasury’s reporting date. HM Treasury uses BEAPFF’s March management accounts to establish the value of the derivative at year end. Due to the non-coterminous year ends, the magnitude of the debt security holdings (with a market value of £450 billion at 31 March 2025), scope for market price movements and risk of non-compliance with the financial reporting framework, I identified the valuation of the indemnity as a significant risk and key audit matter.

Key observations

I did not identify any significant misstatements as a result of the work I have performed.

UK Asset Resolution Limited (UKAR) Defined Benefit Pension Liability

Description of risk

HM Treasury Group financial statements recognise a net pension asset (valued at £364 million at 31 March 2025) in relation to the closed funded defined benefit pension schemes recognised by UKAR. These consist of a gross defined benefit liability (valued at £891m at 31 March 2025) and scheme assets.

The gross defined benefit pension liability is material to HM Treasury Group’s financial statements, subject to a high level of estimation uncertainty and, to a lesser extent, management judgement. As such I have classified the valuation of the defined benefit pension liability as a significant risk and as a key audit matter in respect of the audit of the Departmental Group.

The scheme assets include buy-in policies. Buy-in policies are a type of insurance contract purchased by the scheme trustees whereby the funding to pay future pension payments to pensioners is provided to the pension scheme by the insurer rather than through the management of the scheme by the trustees and are therefore intrinsically linked to the scheme liabilities. These assets are relevant to the significant risk.

All other pension assets continued to be recognised as an area of lower estimation uncertainty and limited management judgement, due to the balance being primarily made up of assets with externally quoted prices. As such I have judged that this does not present a significant risk of material misstatement.

Key observations

I have obtained sufficient assurance over this risk through my substantive testing. I did not identify significant misstatements in the funded defined benefit pension liabilities or buy-in policies as a result of the work I have performed. The assumptions used to value to liability have been assessed as reasonable.

Existence and Valuation of Pool Reinsurance Company Limited’s (Pool Re’s) Financial Instruments

Description of risk

Pool Re receives premiums and invests these in a managed portfolio to generate returns and expand its asset base. Where claims are subsequently made under the reinsurance contracts Pool Re has issued, Pool Re is able to pay against these claims out of its investment portfolio, reducing the risk that the Departmental Group will need to call upon taxpayer funding via Supply to meet its liabilities.

Included within note 18 – Group financial instruments – fair value, Pool Re’s investment portfolio as at 31 March 2025 is valued at £7.0bn in financial instruments, in large part corporate bonds and gilts, and these are material to the group. These assets are actively traded, with £7.8 billion of sales and £7.9 billion of purchases recorded in the 2024-25 financial year. The trading values are also many times the materiality for the Departmental Group. There is an inherent risk of material misstatement in relation to the valuation and existence of these assets, given their scale in context of the group financial statements.

There is also a risk of material misstatement that the related disclosures in the Departmental Group financial statements, including those on financial risk and classification in the fair value hierarchy, may be inadequate or inaccurately prepared.

Key observations

I have reviewed my component auditor’s work over financial instruments and the investment portfolio held by Pool Re. Based upon the work I directed my component audit team to complete, I am satisfied that the amounts recognised within the financial statements relating to the investment portfolio held by Pool Re are not materially misstated.

NWF – Loan Investments

Description of risk

The new National Wealth Fund (NWF) was set up to invest in the new industries of the future, building on the activities of its predecessor the UK Infrastructure Bank (UKIB). Over the longer-term, NWF is expected to make new investments through different means such as direct lending, financial guarantees, direct equity, blended finance and fund investment. The increases in new loan investments of £899m, as presented in note 12 – Loans and investment securities, and equity investments in 2024-25 are significant to the HM Treasury group accounts. The audit of NWF’s financial statements will be completed after the summer parliamentary recess.

NWF’s loan investments classified at amortised cost, presented in note 12, total £1,451 million at 31 March 2025. As presented in note 22 – commitments, NWF has a £905 million contractual commitment to issue loans after 31 March 2025. For financial assets held at amortised cost and undrawn loan commitments, IFRS requires HM Treasury and its Group to recognise credit losses expected over the lifetime of loans, if credit risk has increased significantly since the loan contracts were agreed, or within the next 12 months after year-end if credit risk has not increased significantly.

As set out in note 17.3 – Financial risk: management objectives, policies and sensitivity analysis (Group), Expected Credit Losses (ECLs) on NWF’s loans held at amortised cost were £57 million at 31 March 2025 (£25 million 2023-24).

There is an inherent risk of material misstatement in reliably determining if there has been a significant increase in credit risk, or an actual impairment, of the loans and, therefore, the completeness of the ECL. NWF has used external expertise to develop a bespoke model to estimate ECLs. The ECL calculation requires the use of forward-looking information (such as borrowers credit rating outlook) and assumptions (such as macroeconomic variables, including interest rates) and significant judgement is exercised by management to develop these and to select the best sources of data.

HM Treasury is also required to disclose the fair value of loan investments where this is materially different to amortised cost. The fair value of HM Treasury group’s loans and investments is disclosed as £1,865 million in note 18 and most of this value relates to NWF’s loan investments. The fair value of NWF’s loan investments is based on NWF’s assessment of current market interest rates, which requires specialist expertise to interpret, and judgements must be made by NWF to select the best sources of data.

I have recognised a key audit matter and a significant risk of material misstatement in respect of the audit of the Departmental Group, over the measurement of expected credit losses on, and fair value of, NWF’s loan investments.

Key observations

I have obtained sufficient assurance over this risk through my substantive testing. I did not identify significant misstatements in the calculation of ECLs or fair value as a result of the work I have performed.

Extraordinary Revenue Acceleration Loan (to Ukraine)

Description of risk

With other G7 nations, the UK Government agreed to the Extraordinary Revenue Acceleration (ERA) proposal in June 2024. The relevant UK legislation received royal assent in January 2025 and the loan agreement between HM Treasury and Ukraine was signed in March 2025. As disclosed in note 12, under this arrangement, HM Treasury is lending £2.258bn to Ukraine in three tranches, with the first instalment of £753m being paid on 6 March 2025. Repayments of capital and interest are to be made every six months from the profits of Russian Sovereign Assets (RSAs) held in Euroclear.

The lending arrangement is new, unique and contractually complex, involving multiple parties (UK, Ukraine, G7, EU). HM Treasury needs to apply significant judgement to determine the appropriate accounting treatment. For example, following IFRS requirements, HM Treasury has recognised grant expenditure (of £1,734 million as disclosed in note 6 Operating costs) at the date (1 March 2025) the loan commitment was entered into for the difference between the total transaction price (£2.258 bn) of all three tranches of the loan and the fair value of the total loan. This is because management consider the loan to have been issued at below-market rate and the grant expenditure reflects the expected loss to HM Treasury.

Key judgements and sensitivities are disclosed in note 12. There is significant uncertainty regarding the recoverability of the amounts to be lent and the timing of future repayments, which impacts the fair valuation of the asset recognised by HM Treasury for the loan to Ukraine. These are affected not only by the profitability of the RSAs, but also by developments in the war between Ukraine and Russia and wider geopolitical factors.

I have recognised a key audit matter and a significant risk of material misstatement in respect of the audit of the Departmental Group, over the classification and presentation of the arrangement in the accounts, the valuation of the asset and the loan commitment liability, and the sufficiency and accuracy of the accompanying disclosures (especially with regard to the level of estimation uncertainty).

Key observations

I have obtained sufficient assurance over this risk through my substantive testing.

Application of materiality

Departmental group

Materiality: £1,923m

Basis for determining overall account materiality: 1% of Gross Liabilities of £192.3bn (2023-24: 1% of Gross Liabilities of £190.9bn)

Rationale for the benchmark applied: HM Treasury’s and the Departmental Group’s gross liabilities in 2024-25 contain the BEAPFF derivative and liabilities relating to the UK’s obligations to the EU under the Withdrawal Agreement. The derivative is volatile, and together these are the most significant items by value in the financial statements. A number of other policy activities also lead to large liabilities on the HM Treasury’s and the Departmental Group’s statement of financial position. Overall, due to the parliamentary and public profile of these, I have judged gross liabilities to be the area of most interest to users of the HM Treasury’s and the Departmental Group’s financial statements.

Particular classes of transactions, account balances and disclosures where an additional level of materiality has been applied: All classes of transactions, account balances, and disclosures excluding the BEAPFF derivative balances. The materiality level is set at £153m.

Basis for determining residual account materiality: 0.75% of gross liabilities, excluding BEAPFF derivative of £20.4bn. (2023-24: 0.75% of gross liabilities, excluding BEAPFF derivative, of £17.6bn).

Rationale for the benchmark applied: Despite the dominance of the BEAPFF derivative within HM Treasury’s and the Departmental Group’s financial statements, I consider that readers would also have a significant level of interest in other items that reflect HM Treasury’s delivery of wider activities. I do not believe that this interest is diminished by the presence of the BEAPFF derivative. Therefore, it is appropriate to adopt an additional materiality for other items in the HM Treasury’s and Departmental Group’s financial statements.

Remaining liabilities form the basis of residual materiality due to EU liabilities being the area of most interest to the users of the HM Treasury’s and the Departmental Group’s financial statements and recent changes in interest and exchange rates.

Department parent

Materiality: £1,909m

Basis for determining overall account materiality: 1% of Gross Liabilities of £190.9bn (2023-24: 1% of Gross Liabilities of £189.5bn)

Rationale for the benchmark applied: HM Treasury’s and the Departmental Group’s gross liabilities in 2024- 25 contain the BEAPFF derivative and liabilities relating to the UK’s obligations to the EU under the Withdrawal Agreement. The derivative is volatile, and together these are the most significant items by value in the financial statements. A number of other policy activities also lead to large liabilities on the HM Treasury’s and the Departmental Group’s statement of financial position. Overall, due to the parliamentary and public profile of these, I have judged gross liabilities to be the area of most interest to users of the HM Treasury’s and the Departmental Group’s financial statements.

Particular classes of transactions, account balances and disclosures where an additional level of materiality has been applied: All classes of transactions, account balances, and disclosures excluding the BEAPFF derivative balances. The materiality level is set at £142m.

Basis for determining residual account materiality: 0.75% of gross liabilities, excluding BEAPFF derivative of £19.0bn. (2023-24: 0.75% of gross liabilities, excluding BEAPFF derivative, of £16.2bn).

Rationale for the benchmark applied: Despite the dominance of the BEAPFF derivative within HM Treasury’s and the Departmental Group’s financial statements, I consider that readers would also have a significant level of interest in other items that reflect HM Treasury’s delivery of wider activities. I do not believe that this interest is diminished by the presence of the BEAPFF derivative. Therefore, it is appropriate to adopt an additional materiality for other items in the HM Treasury’s and Departmental Group’s financial statements.

Remaining liabilities form the basis of residual materiality due to EU liabilities being the area of most interest to the users of the HM Treasury’s and the Departmental Group’s financial statements and recent changes in interest and exchange rates.

HM Treasury Annual Report and Accounts 2024-25

Related work