Martin Wolf’s column “Controlling debt is just a means — it is not a government’s end” (Opinion, November 13) highlights the importance of government adopting the same accounting principles as are employed across the private sector to support financial decision-making. The benefits will be seen both in a better understanding of the state of government finances (expressed in terms of net worth, not net debt), and in improved management of the human and capital resources employed by government.
Better management of assets and liabilities, enabled by better accounting and net worth-based fiscal rules, can meet much — perhaps all — of the long-term challenge facing UK government finances, as identified, for example, by the Office for Budget Responsibility in its July 2023 fiscal sustainability report.
On the asset side, better management of government’s huge property assets (systematically undervalued in government accounts) could improve government revenues by the equivalent of 1-1.5 per cent of gross domestic product per year, based on IMF estimates of the frictional costs associated with failing to manage public commercial assets properly.
On the liability side, funding existing public sector pension liabilities by borrowing and investing in a global asset portfolio — impossible to contemplate under debt-based fiscal rules — could generate returns of about 3 per cent a year over the associated financing costs. Within 20 years, existing liabilities could be fully funded and government finances improved by a further 3 per cent or so of GDP. What’s more, the government balance sheet would benefit from stronger net worth, and greatly improved liquidity and financial resilience.
Taken together, the opportunities that better accounting and fiscal rules can unlock could generate government revenues of more than 4 per cent of GDP a year — close to what is needed to stabilise public finances for the long term.
John Crompton
Sawston, Cambridgeshire, UK