THURSDAY, JULY 15, 2010
OECD Supports George
Labour left us with hugely over-priced public services
Contrary to what the BBC and Labour would have you believe, the mainstream economic consensus strongly supports George's assault on the fiscal deficit. They support his plans to squeeze public spending and cut welfare benefits, and moreover they urge him to get on with cutting business and income taxes.
The latest OECD commentary is a striking addition to this support. The OECD says:
"The comprehensive budget announced by the government on 22 June was courageous and appropriate. It was an essential starting point... OECD shares the UK government’s position that fiscal consolidation is a policy for growth...So the OECD agrees that cutting the deficit is the way to boost sustainable growth - not undermine it as the left claim. They also agree that our public services have grown inefficient and costly under Labour, and require serious surgery.
UK productivity is hampered by slow or partially implemented structural reforms to public services and low levels of resource utilisation. Healthcare and education services are relatively inefficient... The cost of producing public services in the UK is well above the OECD average and has risen significantly over the past decade..."
On taxes, they support George's move to cut the Corporation Tax rate, but urge him to go further. In particular, they want him to reverse Labour's crackpot increase in the top rate of income tax to 50% (as we've blogged previously, it will damage incentives and may well end up reducing tax revenue).
The only question now is WTF the OECD - who we pay £15m pa for BTW - didn't say any of this while Labour were still at the controls? It might have saved a lot of grief if they'd told us then, before we'd mortgaged the grandchildren.
It all comes back to that independence thing. The OECD is an excellent organisation in many ways, and employs a lot of very talented people. But unfortunately, any organisation directly funded by politicos is always going to have problems speaking the unvarnished truth unto power - especially in public. And doubtless Labour could argue that very point applies equally well to this latest report.
Which brings us back to the unfortunate events surrounding Alan Budd and the Office for Budget Responsibility. Here was a genuine attempt to establish some independence from government, headed by a man of apparently unimpeachable integrity with absolutely no ambition to do the job long-term. But it's still come horribly unstuck. Yes, it's cock-up rather than conspiracy, but the damage has been done.
As we've always said, the OBR must be put on the same footing as the National Audit Office. It must be accountable to Parliament and funded by Parliament, not the Treasury. Of course, there could be problems with Budget secrecy, but the NAO (whose staff sign the Official Secrets Act*) has managed to be a fairly leak-free zone, and there's no reason to think the OBR couldn't be the same.
Somebody needs to be to cracking on with this right now. So let's just hope they are.
*Footnote - Just for interest, here's Alan Budd's appointment letter, setting out the various secrecy conditions applying to the role. Along with his pay of £2885 per week.
Labels: cuts, fiscal policy, OBR
Labels: debtWEDNESDAY, JULY 14, 2010
ONS Gets Serious On Public Debt
Yesterday the Office for National Statistics published a very interesting paper on public debt. For the first time in an official publication, it brings together estimates of all those off-balance sheet Enron items we've blogged so often - public sector pensions, PFI, state pensions, bank bail-outs, nuclear decommissioning - the lot.
And it gives a pretty evenly balanced commentary on the kind of liabilities involved, and some of the estimating problems. Yes, much of this material has been published in dense technical form before, but this paper is much more accessible and mercifully much shorter (a mere 26 pages).
The paper opens with a statement it's worth quoting in full because we might almost have written ourselves:"Just as for companies and households, the public sector’s balance sheet is central to assessing its financial health. Such a balance sheet would set out the public sector’s assets – what it owns or is owed – and its liabilities to others. A limitation of traditional balance sheets is that the liabilities they include are defined quite narrowly and so exclude a range of potential obligations to others. To ensure that fiscal policy setting expenditure, taxes and government borrowing – is as well based as possible, and in the interests of transparency, the publicly available information on the range of public sector assets and liabilities needs to be as complete as possible."
To which we can only say, hear, hear.
The bottom line is that the ONS is now actively considering whether to include a whole raft of those Enron items in the official measure of public debt. And here's their summary of how that might look (you'll have to click on image to read):
So what does that lot add up to? The Mail's Steve Doughty has done the sums and makes it around £4 trillion - that is, well over four times the current official £0.9 trillion National Debt (Public Sector Net Debt - PSND).
The largest additional items - all of which we've blogged many times - are:
Now, the ONS has not committeed itself to adding all of these to the monthly figures for Public Sector Net Debt, but it does sound as if it intends to publish regular updates of wider public sector liabilities. Which we wholeheartedly support.
Of course, in estimating these wider liabilities, we will expect the ONS to maintain its own high standards of integrity and impartiality.
For example, the official figures it quotes for unfunded state pension liabilities are almost certainly a serious under-estimate. Whereas they quote £1.2-1.4 trillion, external analysts calculate a figure at least twice that (eg see this excellent IEA paper by Nick Silver, which conservatively puts it at £2.75 trillion, and as we blogged yesterday, in terms of the ongoing liability, it isn't difficult to come up with numbers that are a multiple of even that).
Also we're not convinced by the ONS practice of netting off liquid assets from its calculation of public debt. What taxpayers need to know is the size of our gross liabilities. Sure, there may be some assets to set against those liabilities, but those assets can never be entirely secure even if they are supposedly liquid. For example, the deposits our local authorities placed with the Icelandic banks were netted off as liquid assets, but as we later found out, they were most assuredly not secure. And the same goes for the liquid assets of RBS and Lloyds, which ONS are proposing to net off against their liabilities. Doing so will reduce the net debt figure by about £1 trillion, even though taxpayers are actually on the hook for the entire gross debt.
Still, overall, this is another step in the right direction. It is crackers for the nation to depend on external analysts and Tyler's fag packet to calculate the real National Debt, when we employ an army of statisticians who could do the work so much more thoroughly.
The ONS must get cracking and publish the results openly and fearlessly. It's time for us to know the complete and unexpurgated truth about our finances.
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