Corporate finance is widely used by central and local government, as well as other UK public-sector bodies such as NHS trusts, to achieve policy objectives. A complex and specialist topic, corporate finance covers a broad range of transactions including asset sales, project financing, taxpayer rescues of businesses and public-private partnerships.

Over the past decade or so, there have been some high-profile examples of corporate finance in the public sector. These include the bailouts of high-street banks Lloyds and the Royal Bank of Scotland, and the subsequent sale of their shares, and the financing of Hinkley Point C nuclear power station. A particularly topical example is the Energy Relief Scheme, which reduces the cost of energy bills for households, businesses and public-sector organisations.


Sally Percy, journalist

‘We wanted to help anybody encountering a future transaction within government’

The need for help

While corporate finance can benefit taxpayers in the case of good outcomes, it presents risks to the public purse when outcomes are less successful. To help senior leaders better understand both these benefits and risks, the National Audit Office (NAO) has recently published good practice guidance Guide to corporate finance in the public sector.

The NAO, which audits public-sector accounts and reports to parliament on whether government spending represents good value for money, developed the corporate finance guide as part of its insights workstream.

‘There’s a lot of transactional work that government gets involved in,’ explains Matthew Rees, director at the NAO and one of the authors of the report. ‘So, we wanted to help anybody encountering a future transaction within government to understand how we look at it.’

What’s in it?

To create the guide, the NAO examined corporate finance activities covering more than 35 years, across a broad range of government sectors. The guide draws on the NAO’s own reports, as well as additional resources and guidance.

It comprises 14 different themes, ranging from analysis and evaluation, through to asset sales and privatisations, financial guarantees and private finance. Each theme is illustrated by a couple of relevant case studies.

The themes are grouped into three areas to consider when using corporate finance techniques in the public sector:

  • principles and concepts (whether it is appropriate to use corporate finance and, if so, which approach to take)
  • the risks and opportunities associated with using different organisations and functions
  • deciding on the most appropriate transaction to achieve value for money for taxpayers.

‘It’s about building skills within government so they’re well placed to do the transaction delivery’

There is also a section with information on understanding the balance sheet accounting implications of using corporate finance. The guide states that due consideration should be given to ‘how corporate finance activities and arrangements will be accounted for as part of assessing what organisations or functions and transactions will be used to achieve the desired objective’.

Not so different

The guide helps different teams within the public sector to appreciate that they may effectively be engaged in corporate finance, even if they do not use that specific term to describe what they’re doing.

‘There’s a language barrier,’ explains Lilian Ndianefo, manager of the NAO’s commercial hub and co-author of the report. ‘Corporate finance is central government language. If you go into local government, they call it commercial, although it’s exactly the same thing.’

Rees believes that advisers in the corporate sector will find the guidance useful so that they can effectively advise government. It will also be informative for the government’s own corporate finance profession. ‘It’s about building skills in this area within government, so they’re well placed to do the transaction delivery,’ he says.

Ask the right questions

Within the guide are suggested questions for senior leaders to ask about the corporate finance projects proposed by their organisations. These questions are intended to provide practical challenge and support. If leaders are not comfortable with the answers they initially receive, they should look to probe further.

‘Taking a step back and thinking about the wider consequences of government activity is really important’

There are also practical questions to accompany each of the 14 themes, which are based on lessons learned from NAO reports. For example, a question on the theme of asset sales and privatisations is: ‘Have wider government objectives been considered when setting the objective for the sale, and has the organisation assessed alternative options?’

A good place to start

Ndianefo says the guide is a good place to start for any senior leader who has come into government, or is in government already, is running a programme and wants to know which questions they should be asking of the team, or the finance director or even the chief executive.

‘When people think of corporate finance and they want to do a programme, they tend to go straight to thinking about the activity,’ she explains. ‘We’re saying, before you get to that point when you’re deciding on a transaction, think about the other considerations you should include.’

‘Taking a step back and thinking about the wider consequences of government activity is really important,’ adds Rees.

Ultimately, the NAO hopes the guide will help to ensure that far more good outcomes than bad arise from the use of corporate finance in the public sector. ‘This is a go-to document that leaders can access to look at how things should be done, what sort of questions should be asked, and what should be in place for the particular transaction they’re about to embark on,’ concludes Ndianefo. ‘And they need to keep revisiting it to ensure value for money for taxpayers and good outcomes in general.’

More information

Listen on-demand to the session ‘From data to decisions: transforming public finance and procurement systems’, featuring the NAO’s Matthew Rees, at ACCA’s 12th Virtual Public Sector Conference