There’s a perverse untruth about the fiscal deficit that the likes of the Institute for Fiscal Studies and their acolytes, like Stephanie Flanders on the BBC, keep going on about. This untruth is that we had one before 2008. The truth is that if government had accounted like a company – on an accruals basis – there would have been no deficit recorded at all.
Some horrible little fact checkers decide to have a look:
The Treasury, however, disagrees.
A spokesman told Full Fact: “[Murphy\’s] article misunderstands entirely the way we account for public finances. We already use accruals accounting.
“It\’s also quite wrong about the payment of tax lagging by a year. Many taxes are paid much earlier and corporation tax, for instance, can be paid slightly in advance.”
Independent experts are also sceptical.
Andrew Gambier, manager of technical strategy at the Institute of Chartered Accountants in England and Wales, says that the Government uses a mixture of accruals and cash-flow accounting, with items such as Private Finance Initiatives and state pension liabilities covered by the latter method.
Mr Gambier said: “I think Richard Murphy\’s argument is a nice try, but it\’s overly simplistic. I\’m concerned about him simply shifting the income graph forward a year.
“Large, profitable businesses making more than £1.5 million profit a year have to make payments on account of their corporation tax liability so they are already on an accruals basis. Also, as corporation tax is a small proportion of overall tax receipts it wouldn\’t make much of a difference even if he were right – and he\’s not.”
Both the Treasury and the ICAEW say his argument is, umm, full of shite.
As Ritchie himself says in his own comments section:
And if you deny that you know nothing of tax, accounting or economics