Approaches to the PSBR

Abstract

Most economists would doubtless reject the idea that policy makers or the public should judge budgets solely in terms of a single summary concept, surplus or deficit. Yet there is an undoubted demand for a single statistic which provides at least a rough-and-ready summary of the fiscal position. The attempt to specify such a single statistic has given rise to controversy for many years.

Developing Whole of Government Accounting in the Uk: Grand Claims, Practical Complexities and a Suggested Future Research Agenda

“…In fact, the idea of using the public sector net worth figure as a tool to enhance macro‐economic management is not a new concept. It can, for instance, be traced back to debates by UK government officials and academics in the mid‐1980s, with Odling‐Smee and Riley (1985), both from HM Treasury, arguing that it would be ideal for medium to long‐term governmental debt to be managed so that the public sector balance sheet's net worth measure remained unchanged. Britton (1987), the then director of the National Institute of Economic and Social Research (NIESR), supported Odling‐Smee and Riley when he argued that it would be financially prudent for the government to ensure that the real net worth of the public sector was not eroded, but should instead be made to grow roughly in line with real incomes, unless there were extenuating circumstances to warrant departure from such a policy (e.g., in times of war or in a major emergency).…”

“…Other advocates, such as Buiter (1985), an economist and former member of the Bank of England's Monetary Policy Committee, also suggested that the adoption of a balance sheet approach could help to improve the quality of information used in the management of public sector finances. Buiter (1985), however, went further than the proposals put forward by Odling‐Smee and Riley (1985), arguing for a more ‘comprehensive’ public sector balance sheet model. His proposed model was very future oriented and sought to take account (using actuarial‐based measures) of the present value of future income streams (relying on the government's sovereign right to set taxes in order to justify the reasonableness of such an action), and the present value of future spending commitments (see reviews of the model in HM Treasury, 2002; and Britton, 1987).…”

“…The decision to include pension liabilities on the WGA balance sheet has been accompanied by governmental attempts to minimise any substantial impact on its financial position. For instance, the government (see HM Treasury 2003a; and 2004, para.3.4) has started to reconsider the case for including future taxation revenues alongside required liability disclosures, despite, as noted earlier, this case being rejected on the grounds of ‘excessive’ subjectivity in the mid‐1980s (see discussions in Odling‐Smee and Riley, 1985). The government proposed to publish these revenue projections in a statement that will juxtapose with the GAAP‐based WGA report.…”

“…The paper's analysis has raised a number of concerns about current proposals for WGA in the UK. In particular, it questions the appropriateness of such an ambitious consolidation project, given: (1) the problems experienced by the private sector over its use of consolidated accounting (Hartgraves and Benston, 2002; AAAFASC, 2003; and Clarke et al 2003), (2) the conceptual and operational difficulties in adapting consolidated accounting techniques for public sector use (Odling‐Smee and Riley, 1985; Buiter, 1985 and 2001; Britton, 1987; Heald and Georgiou, 1995 and 2000; and Ellwood 2003), and (3) the doubts expressed over the value and efficiency of accruals accounting (on which consolidated public sector accounts are based) in a public sector context (see Mellett, 1997 and 2002; Ryan, 1998; Barton, 2004, 2005a and 2005b; Heald, 2005; Newberry and Ellwood, 2004; Carnegie and West, 2005; and Hooper et al, 2005). Given these claimed short‐comings, there is a pressing need now to assess the value‐in‐use of WGA information, particularly as WGA moves into a more operational mode within public sector organisations.…”

“…It was said to be capable of assisting government in improving its management of public sector solvency, sustainability, and inter-generational fairness (Buiter, 1985). 12 HM Treasury (see Odling-Smee and Riley, 1985), however, dismissed Buiter's model in the mid-1980s, claiming that its implementation would be difficult due to the significant guesswork required in quantifying the forward-looking information. According to HM Treasury (2002), the renewed interest in the balance sheet approach in the late-1990s came through major economic policy changes, such as the CFS and RAB, leading policy-makers to place a greater emphasis on resource use and capital maintenance.…”