True Up Uk plc's Accounts

Sometimes I prepare blogs which I don't publish. Here's one I found from last March. Quite interesting with hindsight.

A key lesson we can learn from our local government electoral successes is that when we take over from Labour administrations, we need to communicate to the electorate the true nature of the Labour legacy. We need to make the case for truing up UK plc’s accounts as soon as we get a chance to open the books.

Anyone who consumes political news can see that Labour is eager to frame the economic debate - which is the key battleground at the coming election - in terms of Tory spending plans. This is a problem for us. The Labour government has shown that they will unleash the machinery of a politicised senior Civil Service to attack specific ideas, but being overly vague on our deficit reduction plans sends a poor message to voters.

In respect of the inevitable future spending reductions, the media have taken up this what/when/how line of questioning on Labour’s behalf, and time after time we see Tory spokespeople on our screens walking a delicate tightrope between realism about and over-enthusiasm for cuts. It rarely looks pretty and in the context of a deficit of trillions, has, at times, descended into heated arguments over line items which are, in relative terms, minutiae.

The simple truth is that without sight of the books, we won’t know the true extent of the deficit problem or be able to diagnose the consequent action required. To fight on this territory before the election is like going into battle blind-folded, and it isn’t good strategy.

Therefore we should seek to reframe this debate by describing our approach to deficit reduction. Whilst certain cuts can and should be made from day one of a Conservative government, the larger part of the deficit reduction programme needs more groundwork.
In my view, the first step in this programme is to true up the national accounts. It may seem like a long time ago, but New Labour’s golden rule was that debt should not exceed 40% of GDP. First mentioned by Brown in the 1990s for over a decade, many major government projects and policies have been structured in ways with adherence to this rule as a prime objective. Classifying spending as investment, PFI projects where unavoidable future costs are not recorded as government liabilities and the non-recognition of future pension liabilities are the best known tools in the government’s box of accounting tricks, but they may be just the tip of a very nasty iceberg. Like Enron, the UK government has used the letter rather than the spirit of the law to present their numbers in a favourable way.

To reveal a fairer picture of our finances, we should engage an independent firm to prepare a May 7 2010 UK plc balance sheet under private sector standards valuing our assets at their market value and recording our liabilities in full. A summary of the adjustments made to take the leap from our predecessors’ records to get to this truer picture should not be difficult to set out.

Armed with this realistic information, we can have a proper public debate about future fiscal decisions. It may well be the case that after ring-fenced budgets and unavoidable commitments, the percentage cuts required in other areas to get our finances back on track are even greater than previously estimated or advertised. Or we may need to renegotiate onerous contracts entered into by the previous government. But that’s a question for the future.

These interminable arguments about what, when and where to cut which do so much to switch off the electorate can be extinguished, if instead, we answer such questions by describing our approach. It can also be used to put the onus on Labour on whether or not they support our sensible approach. If we can put this inane deficit debate to bed, perhaps we can focus our attention on the important business of recreating the excellent conditions for economic growth in the private sector which we provided last time we were in government.

Another reason for taking the approach I describe is to manage public expectations. If we don’t go through this exercise, I fear that financial grenades will be exploding for years to come. I’d hate to see us caught in the same cycle of obfuscation and form over substance that we have come to expect under New Labour. We wouldn’t be forgiven by the electorate for that.