Balance Sheet Accounting for the UK economy

The true health of the economy is not to be judged by the growth rates, nor the state of the government’s finances on the size of the annual deficit, nor upon the balance of payments. It is upon the state of the balance sheet.

 

In simple terms, a balance sheet consists of liabilities and assets.

 

Liabilities – examples

 

  1. The National Debt £800bn
  2. The Final Salary Pension of public sector employees £1,000bn
  3. State Pension and disability benefits       say £1,000bn
  4. NPV of PFI schemes
  5. Maintenance of exiting assets, e.g. NPV of maintaining buildings and roads in their current state.
  6. Commitments, such as increasing the school leaving age to 18, emissions reductions, or the cost of reducing poverty. 

 

Assets

 

            This is not the actual assets that a government holds – the land and buildings at market rates, the cost of computer equipment. For a business these are assets, as they will provide future returns, but for a government they are the means of carrying services. The major asset is the future tax revenues. The government’s asset is the future capacity of the general public to pay tax.

 

It may not be possible to get a full balance sheet, and any conclusions will be contentious. But from year to year, it will be slightly easier to look at the change in the balance sheet from year to year. Such an approach will be a focus for debate, and move politicians away from short-term expediency and towards long-term stewardship of the Nation’s finances.

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