Labor party accused of planning to 'game the nation's ledgers'

Rachel Reeves, the shadow chancellor, claims the Conservatives are «wasting» tax revenue in the North Sea Photo: Phil Noble/Reuters

Conservatives have accused Labor of planning «dangerous accounting tricks» that could allow the party to borrow billions more pounds under its financial rules.

Chancellor Jeremy Hunt said Rachel Reeves, his Opposition colleague, was preparing to «mess around with books”, going “out of the Gordon Brown playbook”, returning to claims that the former prime minister hid private finance schemes “behind the balance sheet” to maximize borrowing. The Labor Party insisted these allegations were untrue.

The intervention came as the independent Institute for Fiscal Studies (IFS) also sounded a warning over Labor Party plans to introduce a budget rule that would take into account «public sector assets as well as public sector debt».

A commonly used measure of the public sector balance sheet is simply the level of government borrowing and interest on debt. However, the IFS said Labor appeared to be considering introducing a «public sector net worth» (PSNW) rule under which public assets, including nationalized industries, could effectively offset the cost of debt.

Note The IFS statement released yesterday said: “If the government were to acquire [for example] an energy company for what it is worth, the increase in debt would be offset by an increase in public sector assets, leaving PSNW unchanged. The company could always be re-privatized in the future, resulting in a reduction in public sector assets and liabilities.»

'Squandered' North Sea revenues

The direction in which Labor plans to move was outlined in an article published by Mr. Joy Reeves in May, which claimed the Conservatives were «wasting» tax revenue in the North Sea.

It added: “Our fiscal rules will prevent such waste from happening again, taking into account public sector assets as well as public sector debt.”

Labour insisted that its greater emphasis on public assets would be completely separate from the fiscal rule that debt would fall as a percentage of GDP. Instead, this approach will be used to «understand the consequences of fiscal policy decisions.»

Mr Hunt said: “This is straight out of Gordon Brown's playbook. Labor is simply dishonest about its short-term economic plans and is clearly planning to cook the books to hide billions of debts using dangerous accounting tricks.»

Ben Zaranko, IFS economist, said: «PSNW is a valuable addition to the usual set of financial indicators. This is an interesting and useful indicator. But we shouldn't focus on PSNW as a budget goal.

“The performance against the PSNW target will tell us little or nothing about the government's ability to access capital markets or service its debt. That makes it a bad financial rule.”

The paper published by the IFS raises the question: “should an increase in the assessed value of an asset that the government cannot sell really be taken as a signal that the government can afford to borrow more?”

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A Labor Party spokesman said: “We can categorically rule out including additional public assets in the debt rule. We would measure the public sector balance sheet to understand the impact of fiscal policy decisions. This will be separate from our other budget rules.

“The Conservatives broke their budget rules for the tenth time this year, with the national debt at its highest in more than 60 years. Labor will never spend what we cannot afford. We will introduce a new set of fiscal rules. These rules will apply to every decision made by a Labor government and are non-negotiable.»