Much is being made of the idea that if government borrows to invest therefore that is different from government borrowing to spend. Which is true, obviously. Therefore we should be including the things government invests in on the balance sheet, as well as the borrowing government has done to do that investing. Seems reasonable enough. Mark Carney:

The debate over new fiscal rules is therefore as welcome as it is overdue. It makes little sense to ignore the nation’s assets when calculating the national debt, particularly when some initiatives — such as the National Wealth Fund — are expressly designed to do what they say on the tin, namely build national assets.

We do bump up against a few problems. What politics designs something to do and the actual outcome aren’t quite the same thing. So, we need to include the value of those assets when they’re up, running and paying back not at the point that the plan is declared. Further:

The Office for Budget Responsibility (OBR) has warned that successive Labour and Tory governments have found it “particularly difficult” to deliver quick and meaningful increases in capital spending, even when budgets are increased substantially.

We’ve that interesting problem that it’s d’md near impossible to actually build anything in Britain so we’re likely to find out that the costs of having built are rather higher than the value of what is built that can be put on that balance sheet. The £300 million the planning application for the Lower Thames Crossing has cost is most certainly a cost but it’ll not be an asset that produces revenues in the future and so is not a positive to put on the balance sheet.

There’s even that basic logical problem that if something were vastly profitable to build then the private sector would be clamouring to do it already. If government’s necessary we’ve at least a presumption of the idea that it’s not going to be one of those vastly profitable things.

But, OK, brush all of these away. Assume them away, as economists so like to do, in order to have a look at the underlying model. We should have a proper government balance sheet, showing both assets and liabilities, positives and negatives over time. Cool. We do, already, sort of have this in the Whole of Government accounts. So why aren’t we just using those?

Because if we do bring those whole of government accounts, properly constituted, to the forefront of the national debate then the financial markets are going to shriek in fright and head for the hills. Because those whole of government accounts, properly constituted, include the truly vast, trillions of pounds, bills for the things we’ve already promised ourselves. Unfunded public sector pensions, unfunded state pensions, the costs of the NHS as an increasing ageing population passes through it on that one way road. The asset to offset those is the future tax revenues that can be squeezed out of a captive population. Which is, absent immigration, shrinking and shrinking quickly.

That is, properly looking at the state assets, state liabilities, gives us a very much worse picture than the way we currently do things. Which is why people generally mutter and pass on to easier subjects when the use of whole of government accounts is mentioned.

Sure, we should include both assets and liabilities on the state balance sheet. It’s just that given the way the politicians have been spending promises this past century the outcome is not just worse than is generally known it’s worse than most will even believe.

Tim Worstall