Gordon Brown has made quite a good speech today, outlining how he believes resuming economic growth is the key to sorting out the public finances. On this he is in tune with most economic opinion.
But last night, Number 10 briefed heavily that the important part of the speech was a “new announcement” about £16bn of asset sales as a way to address concerns about the budget deficit.
Lord Mandelson repeated this canard on the radio this morning, saying assets sales were part of the government making clear how it’s “going to cut the government financial deficit by half in the next four years”. The FT, checking whether the announcement was new, covered the news in brief, using agency copy.
Others were more pliant, with the BBC among others treating this as big news. Tomorrow, the paper will have to inform readers in gory detail why the re-announcement was not news. Why is it worth ignoring?
As I have previously noted in the paper, you need to have your wits about you whenever Mr Brown starts talking new numbers. His reputation for repeat announcements, inflated claims and double counting precedes him. This time the three big problems with the policy are:It is not new. In the 2009 Budget, Alistair Darling, the chancellor, said: “The Government has set itself a central goal of realising up to £16 billion of property and other asset sales in the three years from 2011-12, with proceeds raised being used for new capital investment”. So a repeat announcement from Mr Brown (giving minimal details of the assets in question) cannot have any effect in repairing the public finances faster than the government has already pledged.It does not affect the underlying government deficit. An asset sale, by definition, is the process of swapping one asset (a bridge, for example) for another asset (cash). It makes no difference to the underlying budget deficit, which is the difference between public spending and tax revenues.I believe, but am in the process of checking, that it is classified as a financial transaction that has also always been specifically excluded from the budget deficit. When the government put money into the banks this year, measured public sector net borrowing did not rise – the government has had to borrow much more than the £175bn projection for PSNB this year to finance that recapitalisation; the same logic says that when it sells an asset, borrowing will not fall.
The Office for National Statistics has just told me the issue of classification is very complex. The Treasury has been much more helpful and given me chapter and verse on their understanding of the classification issue. Stop now if you just want the bald facts – none of my arguments change. But some of the detail does.
Local government physical assets. Sales here do reduce the deficit, but the Treasury has assumed the £11bn planned sales will be reinvested, thereby having no effect on the deficit. It counts as a reduction in public sector net investment followed by an increase of the same amount, as local authorities swap one set of buildings for another set.
Central government physical assets. Sales here are treated in the same way as for local government – with the assumption that the money recovered will be spent. But the additional wrinkle is that 20 per cent of any profit on £3bn of asset sales flows back to the Treasury. This will be so small that the Treasury was not willing to put a figure on it.
Financial assets, such as the student loan book. These would be treated as a financial transaction with no effect on deficits but a reduction in debt.
The upshot is that the policy does precicely nothing to reduce government deficits relative to the Treasury’s Budget forecast.