Comment – How two plus two makes five

Government accounting is a deep mystery to most people outside the sums is far removed from accountancy’s best practice methods. Sir Peter Kemp asks where it all went wrong. Treasury. Any accounting is a deep mystery to most people inside the Treasury.

So it ought to be good news that the recent Red Book – the primary Budget document – tells us that, as part of the proposed Code for Fiscal Stability, the government ‘will ensure that best practice accounting methods are used to construct the public accounts’.

And the Red Book tells us of work that is in hand, designed, it is said, to strengthen the basis to make fiscal policy decisions.

No-one will disagree with this as an aim, even if there are deep elephant traps waiting for those in the public sector who try to ape private-sector practices, and even though this is an area where time and effort, and massive fees to private consultants, can be squandered more easily than usual. We shall see.

But the Treasury aim slips at the first hurdle, because there is one simple, cost-free area where best practice accounting methods could be adopted right away. That is how the public finances are presented in the Red Book itself. For this is a mess: very difficult to follow, contradictory and misleading.

For instance the components of the net fiscal balance – the dreaded PSBR – are all over the place in different, non-cross referenced tables. We need a proper ‘where the money comes from and where it goes to’ table.

True, it looks from the way that many newspapers printed the same numbers that, as part of the Budget press briefing, the Treasury produced what is presumably the authorised version. But it is not in the Red Book, which is a big gap in a document of record. And it uses numbers which are in themselves misleading: administrative cuts as opposed to functional cuts.

The numbers are different in different places. There is plenty of exercise of the ‘what if’ school of financial reporting. Thus the PSBR is put at #2.3bn in one place, but when adjusted for the windfall tax and associated spending it is put at #3.9bn.

It takes some sophistication to comprehend there can be a variety of ‘right’ numbers. To the non-specialist all these different numbers must show some malaise somewhere.

And why does a government devoted to openness not produce something we can all understand? They could call it a ‘People’s Presentation’.

Andrew Likierman, the grandly titled director of financial management, reporting and audit in the Treasury, should get his act together. Let him pull some of his people off snark-like wheezes like resource accounting and put them into work on presentation.

The trouble is this means taking on the economists, whose baby the Red Book is, and who are in love with it. But if Likierman does not win this simple battle, what hope is there for wider introduction of best accountancy practice?

Sir Peter Kemp is chief executive of the Foundation for Accountancy and Financial Management.

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