Window-dressing the accounts MONEY
NICHOLAS DAVENPORT
Perhaps I had already been conditioned by the hilarious cartoon in the Evening Standard of the Queen, reading the speech from the throne, with the caption : 'Finally, gentlemen of the Commons, my husband and I have decided to emigrate'; but what struck me as comic was that all this pomp and pageantry had to be laid on to announce inter alia trivia a technical change in the form of the national accounts of which no one present in uniform or evening dress would be able to understand one word. In fact, the only people likely to understand it were far away in the City busily dealing in the gilt-edged market without wearing even a top hat.
The intention, the Queen said, is to introduce a National Loans Fund Bill. Do not suppose that the Government is at last trying to separate its capital from its current expenditure and to introduce two budgets, one for capital and one for current transactions. That may come in time, I hope, but not yet. The Government is simply opening up another banking account at the Bank of England and bringing into this account most of the lending transactions now charged on the Consolidated Fund (but not those charged on Votes) and all its own borrow- ing transactions. It will still leave a lot of capital difending in its current 'supply services' expendi- ture, for example, for defence, education, hos- pitals, and the investment grants to private industry, but I do not agree with the jibe that the Chancellor's object is to ensure that our budget estimates and exchequer accounts which are presented in a highly misleading form at present can be presented in a newly mislead- ing form in future. I am sure Mr Callaghan is honestly against financial obfuscation. In the old form the budget accounts presented the revenue receipts and cur-rent expenditures and thereupon drew a line. The revenue surplus then got swallowed up in below-the-line capital ex- penditures which were usually large enough not only to absorb it but to throw up what was called 'an over-all budget deficit' and so scare the gnomes of Zurich. The whole thing was nonsensical because it made out a conservative Labour Chancellor to be a spendthrift inflation- ary financier when he was in fact deflating the economy by exacting forced savings on an im- mense scale.
Pause for a moment to consider the surpluses which the conservative Mr Callaghan exacted from us in the last three years. In 1965-66, 1966- 67 and 1967-68 he budgeted for the following revenue surpluses above the line—£544 million, £1,047 million and £637 million respectively. The budget out-turn was £689 million and £738 million surplus in the two years to March 1967. I submit that a total of £2,064 million in forced savings from the public in three years is
• no mean deflationary achievement. The fact that the central government had to borrow in this period £2,259 million to help finance the capital expenditures of the nationalised indus- tries, the public boards and the local authorities —a mere £195 million more than its forced savings—was not in itself inflationary. The bulk of this capital expenditure created useful alsets—socially or commercially productive—
and its finance could not possibly be inflation- ary unless it happened that there was an insuffi- ciency of national savings to support the total national investment. This the budget or finan- cial statement never reveals, but it goes as far as it can by giving the capital expenditures and savings of the whole of the public sector. On current account in 1967-68 the public sector budgeted for a revenue surplus of no less than £2,432 million.
On the basis of the 1967-68 estimates the new National Loans Fund would have been credited, if it were now in existence, with the current estimated revenue surplus of £637 million and the proceeds of borrowings to come from the public, estimated this year at £943 million. The fund would then be paying out in loans to the nationalised industries and boards £906 million (electricity £458 million, gas £225 million, Post Office £170 million, etc.) and to the local authorities £674 million (net). These last would be made through the Public Works Loan Board which is apparently to remain in existence. The ideal reform would have been to remove hous- ing loans altogether from the national accounts and set up a National Mortgage Corporation which would raise its loans direct from the mar- ket or the institutional life funds. I had hoped that this would be done when the ingenious Mr Crossman was Minister of Housing but the Government has now got itseff so involved with the local authorities by granting them sub- sidies for their mortgage business based on the difference between the market rate of interest and a notional 4 per cent rate that it finds a divorce of local housing loans impossible. In- cidentally, since these subsidies were granted the PWLB no longer allows the local authorities to borrow a portion of their loans at less than the market rate. The new National Loans Fund will insist on market rates for everyone who has access to it. Mr Callaghan pretended to his irate backbenchers that the local authorities might be able to borrow at cheaper rates of interest, but frankly it was a pretence. Now that the national- ised industries have been given financial stan- dards and targets—the test discount rate of 8 per cent for all new investment—their pricing poli- cies will have to take care of the market rate of interest on their borrowings from the National Loans Fund.
While I welcome any reform of the system of national accounting I am not throwing my cap in the air over the National Loans Fund account. I regret that the Chancellor decided after all not to set up, as he had thought of doing, a new financial agency which could bor- row direct from the market and make loans to
local authorities and chosen boards like the IRC. Without a separate financial agency the National Loans Fund will be regarded by the gnomes of Zurich as i mere accounting device for hiding the net 'borrowing requirement' which the budget accounts in their presenf form have to disclose as a final figure. It is certainly not going to give the student of economics—in Zurich or elsewhere—any new criterion for judging the inflationary or deflationary state of the British economy. It is therefore bound to be regarded by most people as a form of window- dressing, though not unreasonable window- dressing. if the gnomes of Zurich remain sus- picious, so will the businessmen at home. It is sad to think that with so much well-meaning reform this Government continues to lose the confidence of the business world. The so-called Industrial Expansion Bill to enable the Govern- ment to acquire shares in businesses was per- haps the last straw in the wind of the Queen's speech. After the Act to legalise intimacy among consenting males the business establishment is bound to remain suspicious of a government Bill to legalise government intimacy with con- senting companies.
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