What you should know about misleading government accounting

How far would a business get if it told taxman that it has two sets of accounts; one real set and one more rosy book which showed the company is in better health than it is?

The answer is probably not very far. However, this is exactly what the government does by playing around with spending and debt figures each year.

The government has two sets of accounts: the national accounts and the financial accounts. The latest accounts cover 2012/13 so we'll have to use those as illustrations.

Under the former the gap between money coming in and money going out is £85 billion against us, ie we're spending too much.

The public sector net debt (that's financial assets less any public sector debt) currently stands at £1,185 billion under the national accounts calculations.

If these figures aren't shocking enough, wait until you see the financial accounts. The gap between the money in and out is a lot more concerning at £179 billion.

Looking at public sector net debt the figure rises to £1,630 billion. The reason for this huge rise is down to a different calculation of public sector net debt that includes £1,172 billion of public sector pension liabilities.

I think we can all agree that £1,172 billion isn't an insignificant sum but the government decides to ignore it because it doesn't have a legal obligation to make these payments, according to Robert Hodgkinson of accountancy body ICAEW.

Clever accounting

Frankly, this a level of clever accounting that would make Starbucks blush and of course the only figures we hear trotted out are those that make the government look more competent that it is, leaving financial accounts for those in the know to pore over.

It's unthinkable that a company would be allowed to file a return to HMRC with such blatant fluffing of the figures but when you make the rules you can do what you like.

The good news is that there is a push to the more transparent financial accounts, according to Hodgkinson. The Public Accounts Committee, which is chaired by Margaret Hodge (who doesn't take kindly to tax avoidance), has said it is interested in the use of the financial account rather than national accounts to aid transparency.

Taxpayers have a right to know just how much trouble the country is in and where the liabilities lie because without fail they will be the ones expected to plug the gap.

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