Analyse and advise on the UK government’s contingent liabilities
The Contingent Liability Central Capability (CLCC) is an analytical and advisory unit within UK Government Investments (UKGI). The CLCC has been established to strengthen contingent liability expertise across government by improving the overall ability to manage the government’s portfolio of risk from contingent liabilities.
What is a contingent liability?
A contingent liability represents a government commitment to possible future expenditure if specific conditions are met or unforeseen events occur, such as loans guarantee (where government agrees to pay the debts of a third party if they default, such as the Export Development Guarantee (EDG) schedule run by UK Export Finance) and indemnities (protection similar to insurance where government agrees to cover costs such as clinical negligence claims against NHS GPs).
Contingent liabilities are a significant source of fiscal risk to government. HM Treasury introduced a new approval framework in July 2017 which requires contingent liabilities that are novel, contentious or repercussive and have a maximum exposure of over £3 million to be evaluated according to five criteria: rationale; exposure; risk and return; risk management and mitigation; and affordability. The framework has been featured by both the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) as an example of international best practice in the management of government guarantees.
Contingent Liability Central Capability (CLCC)
The CLCC assists departments and arms-length bodies with assessing, quantifying and pricing risk from contingent liabilities, allowing departments and government to better understand the scale and distribution of their risk exposure from contingent liabilities. The team comprises actuaries seconded from the Government Actuary’s Department (GAD), credit risk experts, policy professionals and analysts.
Since its inception in April 2021, the team has assisted with over 40 new contingent liability proposals, established the cross-government Contingent Liability Advisory Network, begun working with selected departments to review their existing contingent liabilities and developed initial plans for future data collection across government. Going forward the team will continue to focus on building its presence and developing relationships with key contacts within government.
The team’s key objectives are to:
provide departments with expert and timely analysis of proposed and existing contingent liabilities
build a database to collate information, review and report on government’s overall portfolio of contingent liabilities
provide guidance and promote best practice across government