9 days ago an IEA (Institute of Economic Affairs) Discussion Paper was examined on this blog. The paper heralded the bankruptcy of the UK Government owing to the fact that if its debt was calculated in accordance with the generally accepted accounting practices the overall public sector balance sheet would look much worse. This is because the “liabilities” of Northern Rock, Bradford and Bingley, Lloyds Banking Group and unreported pensions debt would be included. Today some media outlets are equally reporting that the level of debt is actually about five times higher than previously reported because of the inclusion of liabilities in unfunded public service pension obligations and unfunded state pension schemes and the Government’s stakes in Royal Bank of Scotland and Lloyds.
As such, the question today is: to include these “additional” figures or not to include them? The answer seems to be a function of the reporter’s political affiliation as some would consider the inclusion to be financial transparency while others would consider the inclusion to be nothing more than subtle fear mongering. Whatever the case, it is important to note that under the Maastricht Treaty the data on the deficit and debt of governments are calculated according to the 1995 European System of Accounts and the United Nations Statistical Commission decision on the treatment of government receipts. If one looks beyond these international standards then one would realise that the levels of debt of most Western European and North American countries and Japan would equally be five times higher than initially reported.