Saturday, February 19, 2005

Cooking the books

Along with its monthly release of public finance stats, the Office for National Statistics announced it would make a "substantial" reclassification of road maintenance from current expenditure to capital expenditure.

According to the FT:

‘Since capital expenditure does not count as spending in Mr Brown's "golden rule" - only to borrow to invest over the economic cycle - the change could provide billions of pounds of additional leeway and make the difference between keeping the rule and breaking it.

Oliver Letwin, shadow chancellor, accused the government of cooking the books. "This is a classic case of fiddled figures . . . If ever there was proof that we needed an independent national statistics office, this is it."

In a statement on Friday night, the ONS acknowledged that the Treasury influenced its decision to reclassify the statistics but said the influence had not been "improper". It added: "There was a joint study with Treasury statisticians but the decision to make the revision was made by the national statistician alone."

Having once worked at the Treasury, all I can say is…yeah, right. Ollie may have muffed his tax cuts, but he’s definitely right on this one- we need to make the ONS independent, just like the Bank.
Because we’re talking about some real money here:

‘The size of the "substantial" revision was unclear on Friday night, but was likely to run into billions of pounds because every past year of figures would be adjusted. The Highways Agency receives £4bn a year in current government expenditure and local authorities spend an additional £700m on road maintenance.’

The FT also reminds us that Gordo’s already massaged the calculation of cumulative borrowing over the cycle, not to mention the accounting treatment of all that rail borrowing. And we can look forward to many more such Enron style innovations, as the public finances continue to melt down.

As outlined in yesterday's post, the public sector debt/GDP ratio is much higher than Gordo would have us believe. Now, even on his preferred limited definition, the ONS says it was 33.4 per cent at the end of January, up from 31.8 per cent a year earlier. His Golden Rule limit of 40 per cent no longer looks so comfortable, and naturally his response is to cook the books.

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