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Brown leaves a taxing burden on his successor Brown's 'hidden debt of £500 billion' By Tim Shipman - Political Correspondent, Daily Mail, February 5, 2007 Gordon Brown was accused of hiding £500 billion of public debt yesterday. The Institute for Fiscal Studies said creative accounting by the Treasury concealed that the Government was dangerously in the red. It said the true scale of public debt was now £1,100 billion, equal to 87% of national wealth - more than twice the level the Treasury itself regards as sustainable. The Institute said £500 billion had been concealed 'off balance sheet' in Government liabilities for puboic sector pensions, Private Finance inititiative schemes and the debts of Network Rail. Opposition leaders accused Mr Brown of engineering the PFI deals to keep headline debts down. Under these arrangements, a firm builds a school, hospital or other project in return for payments over up to 30 years. The Treasury can score this as day-to-day spending instead of debt. The Institutes' Christine Frayne said the Treasury's calculations failed to represent the true fiscal position. "It would be nice to see these liabilities taken into account," she added. Shadow Chancellor George Osborne, said Mr Brown had been 'rumbled'. "No wonder people are asking where all the money has gone," he said. The most expensive liability is the bill for civil servant's pensions which would push public sector debt over 75% of gross domestic product if they were included on the Government's balance sheet. Roger Bootle, economic adviseer with Deloitte & Touche, said the Treasury should declare the cost of its pension promises. "Pension liabilities are just there. You can't get away from them," he said. A Treasury spokesman insisted it followed international rules, adding: "Decisions taken about how to prepare public sector accounts are scrutinised by the National Audit Office and Audit Commission." Brown leaves a taxing burden on his successor Monday View by Carl Emmerson - Deputy Director, Institute for Fiscal Studies Next month's Budget is expected to be Gordon Brown's last as chancellor before he becomes Prime Minister. His successor at the Treasury is likely to inherit less public debt, and lower borrowing, than Kenneth Clarke bequeathed to him. This is not to say the next chancellor will have an easy task. Brown is likely to hand on plans to cut spending and increase the tax burden. Delivering the spending settlement without compromising government objectives will be difficult and the planned rise in the tax burden is unlikely to be what Brown would have chosen in an ideal world for the run-up to his first general election as prime minister. By historical standards, Brown's successor at the Treasury will find the public finances in a relatively good shape, with both borrowing and debt now lower than they were ten years ago. Public spending - in particular spending on education and the NHS - has increased over the last ten years, but this has been more than covered by an increase in the tax burden. By international standards Brown's record on borrowing is less rosy. Over this period most OECD countries experienced a fall in borrowing and debt than the UK did. The UK's debt is still 'mid-table' by international standards and it s budget deficit in the bottom half. The new incumbent at the Treasury is likely to to be focused on the need to reduce borrowing. The Treasury's own forecasts imply that in today's terms borrowing will be reduced by £20billion by 2011-12, with this gap being filled half-and-half through a further increase in the tax burden and a reduction in public spending. The planned rise in tax revenues should be achievable without new tax raising announcements. Strong growth in revenues from income tax, inheritance tax and stamp duty on the sale of properties should be sufficient as incomes, estates and property prices typically grow faster than the thresholds and allowances in these taxes. So the new chancellor could simply choose to sit back and allow this revenue to roll in. But there might be better ways of raising revenue than continuing to drag more people into higher tax brackets. On the spending side, the new chancellor will certainly not be able to sit back. The forthcoming Comprehensive Spending Review is set to be not only the first fiscal even to be delivered by Brown's chosen successor, but also the most significant fiscal event of 2007. If the new chancellor sticks to current Treasury spending plans, the spending review will need to deliver £7bn of cuts over the three financial years from April 2008, with another £3bn to follow in the year after that. Various pressures exist on the government budget: not least the estimated £4.5bn boost to tax credits that is required if the government wants to give itself an even chance of meeting its ambitious target for reducing child poverty. Ensuring that the slowdown in spending growth for schools and hospitals - the big winners under Mr Brown - is not too great is likely to be an early priority for the new chancellor. But even a very tight spending settlement across the rest of government might not release enough funds to enable the government to reduce child poverty, and improve the quality of schools and hospitals, to the extent to which it would like. This suggests that one strategy for the new chancellor is to announce a tight spending review settlement with the intention of adding more funds at a later stage. But unless the public finances strengthen by more than the Treasury expects, the new chancellor won't be able to add more funds without announcing further tax raising measures.
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