A surprising amount of politics comes down to accounting. As “rules of politics” go it’s not the most thrilling but it has the advantage of being true.
At the moment, Westminster is on hold while Rachel Reeves decides which measure of debt to use for her fiscal rules. The difference between them is over £50 billion of “headroom” that could be spent on infrastructure. It’s all accounting, it’s not as if more money magically appears if she switches to a new definition. But it could make a huge real-world difference if it means we have better equipped hospitals and more transport links as a result. (See this explainer from the IFS for details).
Meanwhile the government are discussing whether to increase university tuition fees, a decision made all the trickier because repayment terms have become much more severe in recent years. This is due to the Office of National Statistics (ONS) deciding, in 2018, to count fees that will never be repaid as borrowing, which led the government to change policy so more would be paid back. In turn these higher repayment charges are adding to young graduates political alienation, set alongside rising housing and childcare costs.
Reeves is also reported to be interested in recreating a version of the Private Finance Initiative (PFI), which was used by New Labour to keep spending on public sector building projects off balance sheet. Unfortunately for the Treasury the ONS have toughened up the rules on these too, making it harder, though not impossible, to get them excluded from borrowing figures.
It’s not just fiddling around with definitions of borrowing and debt that puts accounting at the heart of politics. Dig down another layer and there are all sorts of problems with the core set of numbers we use to make economic decisions, and which provide the basis for OBR forecasts and Bank of England analyses.
We like to think of these building blocks of our economic narrative – inflation, employment, GDP – as proper facts within the noise of daily political bickering. They are imbued by broadcasters and politicians with immense authority. Yet the more you look at how they’re calculated the more sceptical you get. And the more you realise how apparently arcane decisions about how they are measured have huge consequences.
In this post I’ll take a brief tour through some of our most important economic stats and show you the challenges around how they’re calculated. None of which is to suggest that we stop measuring (though we can do it better). But it does argue for thinking differently about how we use and talk about this data. Spurious precision can give the illusion of control but often leads to worse decision making.
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