I posted this thread (with a few bits shortened for Twitter) on my Twitter account this morning:
According to press reports this morning 'Britain faces ‘decades of financial risk' as £370bn pandemic bill mounts'. The headlines seem very familiar: they looks like debt paranoia. But is that true? A short thread....
The headlines are pretty universal. The Observer is guilty of the one that I quote. What the reports are referring to are two publications from the House of Commons Public Accounts Committee this morning. Both relate to the way that the government has managed spending during the Covid crisis.
For those who don't want to read further the Committee's reports are actually pretty good. And there is no debt paranoia in them. There is, though, this unfortunate sentence: 'The COVID-19 response means government will be exposed to significant financial risks for decades to come.'
Journalists have framed this comment as if it relates to debt repayment. The report itself does not do that. Instead it says Covid will cost at least £372bn, but only £172bn has been spent so far and as a result there is £200bn of spending to come in various ways, and that might be spread over decades.
For the record, government debt is not referred to in the report. What is referred to is incompetence in buying things like PPE. And what is also referred to are dire risk assessment methods used when handing out loans. What's also criticised is the current naive assumption that all those loans will be repaid.
In effect, this report says that the government did not have the tools in place, the accounting in use and the data aggregation tools required to manage a large scale crisis. The evidence is pretty compelling that this is true. For saying so this is a good report.
And what the report also says is that the reason that many of the costs of Covid have not been recognised as yet is that the ability to predict what is likely to happen is absent from government accepting systems.
So, for example, the fact that it is thought that more than a quarter of the £92bn of loans to businesses guaranteed by the government are expected to default (the figure suggested is £26bn, but that's a guess, of course) is not reflected in government accounting as yet.
What the report recognises is that when such costs come home to roost, and when stocks of redundant PPE are written off, and so on, there will be hits in the government's accounts that will be used to justify austerity. But the critical thing to recognise is that the spend has, in effect, already happened. It's the accounting for it that's wrong.
I have long been critical of UK government accounting. It is, to be polite to it, CRAp, which is an acronym I've created standing for a 'Completely Rubbish Approximation'.
In other words, government accounting is just not good enough for decision making purposes. And the Public Accounts Committee is simply saying that in a more polite way this morning.
The criticism of the headlines is not then about the Committee. They pretty much got this right and there is no nonsense about 'passing burdens on to future generations' or such similar stuff in their report. Instead the media has spun this as if that's the case.
For once don't blame the politicians. Blame journalists who are at least as wedded to the debt narrative as many in the Tory party are. Journalists are spinning this to suggest austerity is coming. But that's not what the report says. So why is the media so keen to provide a false narrative here?
What is it about our media that makes it want to find reasons for austerity, The Observer included, it would seem? We all should have a problem with this false austerity and debt narrative. And it's not just politics that needs to be rid of it; the media does too.
In the meantime, I support the Public Accounts Committee. You can't usefully number crunch without some decent numbers to crunch, and that's precisely what we are not getting from the government. I applaud them for saying so.
Just as I applaud them for saying that this government panicked and massively misspent in the face of Covid. Lessons have to be learned from that. But will they be?
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[…] wanted me to talk about the report I have already discussed here this morning. But I was quite sure I did not want to be on GB […]
I agree with you about the inadequacies of UK government accounting, Richard. For a very simple and typical example of how important detail is overlooked, just consider how VAT in Scotland is treated. VAT is wholly devolved to Holyrood and is nominally the responsibility of Revenue Scotland, but is wholly managed (administration/enforcement/collection) by HMRC. However there is no accurate means of separating VAT raised in Scotland from the aggregate VAT raised in the UK for the simple reason that all VAT Registration Numbers are issued by HMRC on a UK-wide basis. This means that, for UK and Scottish Government reporting, VAT raised in Scotland is a guestimate and later, if doubts arise about its accuracy, a “correcting” adjustment is made. However, that too will be an estimate that takes us further down the rabbit hole.
The problem could be solved very simply by forcing all companies operating/trading in Scotland to have separate Scottish VAT Reg Numbers so that HMRC and/or Revenue Scotland could produce accurate figures, with audit trail, for VAT raised here. There’s nothing very difficult about doing that for either the traders or HMRC/Rev Scotland, so why are we lumbered with fudged numbers? The same goes for Income Tax although application of Scotland-only PAYE codes does take us part-way towards geographical precision, but there’s nothing preventing wholly accurate data that couldn’t be achieved by applied effort and relatively minor tweaking. Throughout my 48-year accountancy career, it was widely known that HMRC (and Inland Revenue before it) only counted taxes according to place of collection and, with closure of many local tax offices on austerity grounds, much of Scotland’s tax is paid to tax offices in England and therefore counted as English tax receipts. I ran a consultancy firm based in Scotland for 25 years and never once had any dealings with a tax office here for payment or resolution of tax issues. Why is it OK for Income Tax PAYE codes to carry a Scottish marker code, but not for VAT?
When fudging like this is commonplace, it raises questions about how accurately the revenues resulting from North Sea oil and gas were accounted, particularly as to geographical allocation. Blair and Brown’s annexation to England on the eve of devolution of substantial oil and gas fields in waters (which international law recognises as being under Scottish jurisdiction) causes further fudging. Is it the case that the UK is Government is too lazy to be bothered to improve accounting accuracy, or do they prefer to hide the truth for political ends? Either way, with release of the latest GERS figures due soon, it’s worth bearing in mind how little of the figures presented in GERS is represented by actual firm data supported by probative audit trail when all the inevitable howls about Scotland being an economic basket case hit the media.
Thanks Ken
Oops – so I was behind the curve on this one.
‘Glad you saw it.
“The ongoing risk to the taxpayer will run for 20 years… the financial hangover could leave future generations with a big headache”
Is it not a fundamental failure of journalism to, at the very least, probe further with a how or why question here?
The Observer article is pure scaremongering. It borders on client journalism to not offer any analysis or a counterpoint.
And worst of all, I’m not even sure that the chair, Meg Hillier, could adequately lay out the reasons why we’re apparently going to be so hamstrung in the future.
I think the report was fairly clear as to why costs will be recognised for time to come – much of it at the wrong time