A couple of days ago I criticised an extract from the Whole of Government Accounts that had been published by the National Audit Office, I felt incomprehensibly.
I now have the permission of Nick Bateson of the NAO to publish the response he sent to me, and I am pleased to do so.
Dear Mr Murphy,
I am the NAO Director with overall responsibility for our work on the Whole of Government Accounts, and I noted today that you issued a post on your website (http://www.taxresearch.org.uk/Blog/2016/06/06/wood-trees-and-accounting-gibberish/) about our page - Snapshot of UK Finances.
I wanted to provide some more background and context on this page, and describe what we are trying to achieve with it, as I was disappointed to read that you thought it was unhelpful.
The information in the Snapshot is not produced by us, but is from the Treasury's Whole of Government Accounts (WGA) (https://www.gov.uk/government/publications/whole-of-government-accounts-2014-to-2015), which we audit. The introduction to the WGA, which covers 6,000 bodies that form the entire public sector, sets out at a high level the messages and trends within the data from the Treasury's perspective and provides a useful insight into the government's overall finances.
However, the accounts are complex, impenetrable for the public, produced too slowly and incomplete. We describe these issues in our report at the conclusion of our audit of the WGA, which can be found at https://www.nao.org.uk/report/report-of-the-comptroller-and-auditor-general-whole-of-government-accounts-2014-15/. This report includes an introduction to the WGA; details of the audit opinion the Comptroller and Auditor General is able to provide on the accounts; and recommendations for the Treasury to improve the WGA's usefulness and relevance.
Our aim in producing the Snapshot page (https://www.nao.org.uk/highlights/whole-of-government-accounts/) is to place the raw WGA data into the public domain, in a format that can be manipulated. The page is not designed to convey a particular message, but to provide the ability for interested parties to access the rich underlying data that forms the WGA and is not available anywhere else. We hope that this will act as a resource for those who may wish to interact with the complexities of the public finances from an accounting perspective.
I am very happy to meet with you to discuss the WGA; its uses; and the reasons why we think it is important if it would be helpful. The Committee of Public Accounts is planning to hold a hearing on the WGA, supported by some additional material we are producing to illustrate some of the most significant numbers in the accounts (pensions, assets and financial risks) in July.
I released a blog last week that places the WGA in context with the other main elements of the government's financial framework, which you may find interesting. This can be found at https://www.nao.org.uk/naoblog/.
Kind regards,
Nick Bateson
Nick Bateson | Director Whole of Government Accounts
National Audit Office, 157-197 Buckingham Palace Road, Victoria, London, SW1W 9SP
I will take up the offer to meet when I have finished writing my latest book (about half done now).
In the title of this blog I highlight the key issue I picked out of this letter, but the most important issue by far in my opinion is that the accounting base used for these accounts - which is IFRS - is simply unfit for this purpose.
The purpose of IFRS financial statements is supposed to be the provision of useful information to the providers of capital to an enterprise but this makes no sense at all in the case of the government. Most people do not engage with the government on the basis IFRS assumes and even suppliers of capital to it do so knowing it can always repay because it has, unlike any other entity they will deal with, the capacity to print any amount of money to meet its obligations.
In that case the accounts are flawed from the outset because they are designed to supply information no user is asking for or needs.
That's a pretty big problem.
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So the WGA by means of an irrelevant protocol manage to support the idea that the ‘Government is a Household’?
Perhaps what need to be thought out is which parts of it are based on outdated ‘gold standard’ accounting practices like the ‘Consolidated Fund’-this goes back a long way:
“The General Fund was established in 1617, the Aggregate Fund in 1715, the South Sea Fund in 1717. These funds were established in relation to specific Government borrowing authorised by Parliament, which had a defined type of revenue appropriated to put towards the interest and repayment. That particular revenue would be paid into the fund related to the loan. For example, the South Sea Fund was related to the debts of the South Sea Company. The Aggregate Fund was paid all the hereditary revenues of the English Crown, such as profits from the Crown Estate and the Royal Mail. The hereditary revenues of Scotland were paid into the Consolidated Fund from 1788 onwards”
What relevance does this have in a modern, fiat money system except to obfuscate how the money flows work?
The MMT view is that this sort of accounting hides the reality of the Government as issuer of Sovereign money and connives to maintain an illusion that Government only has the money of the rich.
Pure ideology.
I just had a quick look at: https://www.nao.org.uk/highlights/whole-of-government-accounts/ a bunch of treemaps:https://en.wikipedia.org/wiki/Treemapping apparently produced by a proprietary tool called tableau (http://www.tableau.com/). Basically, for a numerically literate, non accountant, this is an unenlightening mess worthy of the worst of Sir Humphrey. It is ‘unhelpful’, no trends, no call out explanations, accessibility problems and on.
They need to read, at least, The Visual Display of Quantitative Information by Edward Tufte and start again. Actually, this book is listed on the http://www.tableau.com/ website with some more modern books.
However the ‘idea’ itself is useful, it’s a small step towards Cybersyn: https://en.wikipedia.org/wiki/Project_Cybersyn, something that Pinochet, Thatcher’s friend, destroyed after the Chile coup. Gestures towards near realtime reporting for government are always ‘interesting’, so one cheer for that, at least.
I actually like Tableu
But it has to be well used
But it isn’t a big problem if the aim is to present (or create an impression of) government as nothing more than part of one all encompassing commercial system – which is what’s going on here. It’s just another take on the ridiculous – but publicly highly effective – presentation of the public finances as being like those of a household.
I don’t understand this frequent reference to not running the public finances like a household.
We learned this week that a third of middle class households would be in serious bother if faced with an unexpected bill for £500. It’s clearly a bad idea to balance your household budget, to be one washing machine accident or car repair away from temporary misery.
If it’s a bad idea for households to balance a budget, then by the logic given it is rather a good idea for the public finances to balance.
I presume you are trying to be stupid
If you are not you are succeeding
If the government produced complete, honest, transparent accounts, it would become obvious that the country’s finances are utterly bust, with quite unaffordable liabilities for future welfare state and pensions expenditures.
So I’d welcome that; debate could then be based on something sounder rather than silly pipe dreams.
Why are the liabilities unaffordable?
Explain why with QE in your analysis
The way you worded that, Richard, sounds like an exam question! That professorship is coming through! Is it one you will be setting for your students – good one for A level economics as well (present syllabus is full of usual myths).
In fact that is the question that should be put to all the politicians in the ‘there’s no money ‘ camp (most of ’em).
Sorry…..
Going back over three hundred years to 1694 and the establishment of the Bank of England nobody should be under any illusion that promoting the myth of “government as a household” is very useful for “rent-seekers” especially the wealthy.
Will this document be helpful Richard?
http://www.publications.parliament.uk/pa/cm200102/cmselect/cmpubacc/349/349ap02.htm
Points 18-20 in particular.
In what way?