Sir Peter Kemp – It’s all a question of balance

There can’t be many more important documents affecting us than the Red Book that emerges at Budget time. But we have to take it on trust.

There is no independent audit. We are in the hands of a motley crew of politicians, political advisers, and statisticians.

Fortunately, there is an organisation which does, albeit after the event, carry out a pretty sound piece of examination. That is the Commons Treasury Committee, and they have just published their review of the 1999 Budget.

And what they have to say is not too flattering about the Treasury’s openness or even, one might say, honesty.

A particular area they home in on concerns the unannounced changes in accounting conventions relating to definitions of public expenditure and tax. Now, in terms of balancing the books, what counts is, of course, the difference between income and outgoing. If only the balance mattered, we wouldn’t much care whether items were scored positive on one side or negative on the other.

But in fact that is not so. The separate totals also matter. Whether or not public expenditure has gone up or down, or whether total tax-take has gone up or down, are matters of big political and economic concern.

Recent governments on the whole want to show tax-take going down, and public expenditure going down too. There is a political premium in terms of simple arithmetic on scoring what ought to be public expenditure increases as negative taxation, and what ought to be increases in taxation as negative public expenditure.

Now the Treasury committee says the latest Budget figures have changed the accepted treatment, without the Treasury telling us. In particular, the abolition of mortgage interest relief at source (MIRAS), which to most people looks like an increase in taxation, is scored as a reduction in public expenditure, while the new working family’s tax credit which one might think of as being an increase in public expenditure, is instead treated as being a tax cut.

So both expenditure and tax are shown as lower than they might be, to the extent, some suggest, of some £100m.

There isn’t any clearly ‘right’ treatment for many elements at the margin of tax and public expenditure. What matters, as the Treasury committee sharply pointed out, is consistency. We should be told about the conventions and any changes in treatment. This is what private-sector accountants would insist on.

Treasury ministers and officials should take note. Seizing as much power for themselves as they do, and banging on about openness, they can’t afford to be in a position where anyone doubts their numbers.

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

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