Accounting for government debt

Some of the big themes of 2017 were around the levels of government debt and its impact on future generations. For too long, government debt discussions have been based on Government Finance Statistics (GFS) such as System of National Accounts 2008 or European System of National and Regional Accounts 2010. These figures don’t pick up all long term liabilities found in GAAP compliant financial statements such as public sector employee pensions and provisions.

However, even GAAP compliant financial statements do not currently reflect all of the obligations that governments will most likely have to honour. One big missing chunk are social benefit liabilities. In the UK, social benefit expenditure is the government’s biggest outgoing, having paid out over £220 billion in 2015-16 (source WGA). [The biggest category within social benefits is the state pension - £91.5 billion or 41% of total social benefits expenditure.]

The good news is that the International Public Sector Accounting Standards Board (IPSASB) are currently consulting on a draft social benefits standard ( Opinions on recognition and measurement have always been very diverse but putting a sensible marker down and issuing the standard will be a huge step forward. It should provide really valuable information on the viability of government policies and allow stakeholders to make better-informed decisions.

It is time that government financial reporting got to grips with this issue and whilst the social benefits standard may well evolve over time, it looks like IPSASB are on the brink of making an initial breakthrough.