The Ministry of Housing, Communities & Local Government (MHCLG) 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 MHCLG’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 the Department and the Departmental Group’s affairs as at 31 March 2025 and its net operating 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

Help to Buy Equity Loans Portfolio

Description of risk

Homes England provided equity loans to homeowners buying new build properties up to a value of £600,000 through its Help to Buy schemes. The Help to Buy equity loans portfolio dominates the Departmental Group’s statement of financial position, valued at £15.9 billion at 31 March 2025.

The valuation is undertaken with reference to market conditions prevailing at the reporting date and the associated accounting and disclosure requirements are complex. There is a significant degree of management judgement involved in the valuation which is highly sensitive to changes in the underlying methodology and assumptions, in particular market prices, and is subject to long-term estimation uncertainty arising from economic circumstances and market conditions. Other issues include:

  • Known quality issues over data feeding into the estimate.
  • Reliance on third parties as key delivery partners within the financial reporting process.
  • Use of a spreadsheet application for modelling purposes, which requires the model to be split over multiple workbooks due to size.
  • A high degree of manual intervention required to produce the final valuation, bringing additional inherent risk.

The significant risk of material misstatement I identified relates to the risk that the method used for calculating fair value is not appropriate or in accordance with the financial reporting framework, that the data and assumptions used in the calculation of fair value are inappropriate, and that there is potential for errors in the modelling used to calculate fair value. It also covers the risk that estimation uncertainty disclosure for fair value measurements is not sufficient or materially accurate.

Key observations

The procedures I performed in response to this risk were satisfactory. I noted no material issues arising from my work.

Expected Credit Loss Allowance

Description of risk

Homes England is required by accounting standards (IFRS 9 Financial Instruments) to consider how current and future economic conditions impact on the level of expected credit loss for certain financial assets, including loans held at amortised cost and trade receivables. This leads to recognition of an expected credit loss provision.

Although the balance of the provision is immaterial, the estimate requires a high degree of judgement across a range of factors, including the level of credit risk associated with each asset, any movement in that credit risk, the probability that borrowers will default and consideration of estimated amounts recoverable via securities held against loans. In addition, the financial reporting framework requires the estimate of expected credit loss to take account of forward-looking information (including forecasts of future economic conditions) and to model against a range of scenarios. As such, the inherent estimation uncertainty is significant, particularly given the highly material value of the underlying portfolio.

The significant risk of material misstatement I identified relates to the risk that the method used to calculate the estimate is not appropriate or in accordance with the financial reporting framework, and that management’s assumptions used in the calculation are inappropriate.

Key observations

The procedures I performed in response to this risk were satisfactory. I noted no material issues arising from my work.

Level 3 Fair Value Assets

Description of risk

Homes England holds a portfolio of financial assets which are valued using unobservable inputs. These are predominantly investments and loans to support development and infrastructure projects which are valued based on the predicted returns that Homes England will achieve, discounted to reflect the time value of money. Within the IFRS 13 Fair Value Hierarchy these are classified as ‘level 3’ valuations and carry a greater inherent risk than level 1 or 2 valuations. Level 3 fair value assets totalled £716.4 million as at 31 March 2025. Within the portfolio there is variation in the degree of estimation uncertainty associated with individual asset valuations depending on the nature of the asset, complexity of the underlying contract, and stage of completion of the project.

To comply with the requirements of IFRS 13 management are required to risk-adjust expected future cash flows to reflect any uncertainty over future viability. Fluctuations in market conditions, and the associated impact on individual investees, makes this increasingly complex.

The significant risk of material misstatement I identified relates to the risk that the method used for calculating fair value is not appropriate or in accordance with the financial reporting framework, that the data and assumptions used in the calculation of fair value are inappropriate, and that there is potential for errors in the modelling used to calculate fair value.

Key observations

The procedures I performed in response to this risk were satisfactory. I noted no material issues arising from my work.

Valuation of defined benefit pension scheme liabilities and recognition of net pension assets

Description of risk

The Department Group accounts for its share of the assets and liabilities in five defined benefit pension schemes. At 31 March 2025 the assets were valued at £1.149 billion and the liabilities were estimated to be £1.468 billion.

Significant estimates are made in determining the key assumptions used in valuing the Departmental Group’s gross defined benefit pension scheme liabilities. When making these assumptions management take independent actuarial advice relating to their appropriateness. A small change in assumptions and estimates can have a significant financial impact on the Departmental Group’s gross defined benefit pension liabilities.

The most significant assumptions are discount rate, inflation rate and mortality/life expectancy. As part of my risk assessment, I determined that the gross defined benefit pension scheme liabilities have a high degree of estimation uncertainty, which is why I considered it a key matter for my audit.

The defined benefit pension scheme assets have a low valuation risk, as the majority are quoted investments. However, where a scheme is in surplus, which was the case for three of the five schemes, at 31 March 2025, I have also identified a significant risk relating to the recognition of net pension assets. The extent to which net assets can be recognised under IFRIC 14 is an area of significant judgement, dependent on the specific scheme regulations.

Key observations

The procedures I performed in response to this risk were satisfactory. I noted no material issues arising from my work.

Application of materiality

Departmental group

Materiality: £441 million (2023-24: £395 million)

Basis for determining overall account materiality: 1% of forecast gross expenditure of £44.1 billion (2023-24: 1% of £39.5 billion)

Rationale for the benchmark applied: The Department is funded directly from the Consolidated Fund and primarily spends money on revenue and capital grants to local authorities and other bodies. The issuing of grants is the main direct means financially by which the Department delivers its remit. Gross expenditure is the primary area of stakeholder interest in the parent financial statements. Most expenditure in the group relates to the parent department, as components do not incur particularly significant expenditure, and therefore expenditure is also the primary area of interest to the users of the group financial statements.

Department parent

Materiality: £440 million (2023-24: £394 million)

Basis for determining overall account materiality: 1% of forecast gross expenditure of £44.0 billion (2023-24: 1% of £39.4 billion)    

MHCLG Annual Report and Accounts 2024-25

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