16.12.10

Fiddle Factor

So what sort of margin of error might we sensibly plan into in our data. It might be helpful to take a steer from the Comprehensive Spending Review which lays out the national spending plans for the next five years 2010/11.

These are serious and big numbers. The total spending for 2010/11 is £697 billion. Having been digging into the Comprehensive Spending Review recently, there are accounting adjustments, depreciation and reserves (including “special” reserves) all of which are separated out. But looking at these collectively, this adds up to a not insignificant figure, which in absolute terms is quite striking.

get the graphic

1. Accounting Adjustments.

That total spend of £697bn (which is Total Managed Expenditure in HM Treasury speak), and comprises of what might be simply described as revenue and capital.

For the revenue part, (Public Sector Current Expenditure) of £637bn, there are accounting adjustments of £14.1bn, which represents 2.2%.

For the capital part (Public Sector Gross Investment ) of £59.5bn the accounting adjustment is minus £7.9bn or 13.3%.

So when we look at the total spend of £697bn, we are aggregating these two accounting adjustments. So combining £14.1 and -£7.9bn we get an accounting adjustment of only £6.2bn or 0.9% of the £697bn. On the face of it our adjustments have become smaller as we have added them together. That £6.2bn or 0.9% belies the underlying bigger adjustments.

We get a quite a different picture if we consider the absolute adjustments. So £14.1bn and £7.9bn give and absolute total of £22bn, which makes a more remarkable 3.2% adjustments of the total £697 spend.

These can be helpfully seen in the context of spending on individual departments. For the revenue spend (Public Sector Current Expenditure of £637bn), that £14.1bn accounting adjustment is more than the settlement for the majority of Government Departments….for example, Intelligence 2.1bn, Transport £6bn, Culture Media and Sport £6.1bn, International Development £6.4bn, Home Office £10.2bn, and indeed the Wales settlement of £13.7bn. And that £14.1bn is still sizable when compared to the other end of the spectrum, the traditionally big spending departments….Defence £35bn, Education £53bn, Health £98bn and Work and Pensions £159bn.

get the graphic

2. Depreciation.

While this is not specified explicitly, some of it can be induced from the various totals. It’s £16.1bn. (This is from a category of resource spending - Departmental Expenditure Limits - both with depreciation, £342.7bn, and without £326.6bn).

3. Reserves

For the revenue part of £637bn there is a £2bn reserve and a £3.4bn “special reserve” (with does rather sound like a port), which make a collective £5.4bn or 0.8% of the total revenue.

For the capital part of £59.5bn, the reserve is 2.1bn and the special reserve £0.7bn, making this £2.8bn, or 4.7% of total capital.

So collectively these reserves total £8.2bn, from a total spend of £697bn represents 1.2%.

In the round

So pulling all this together, there’s £22bn Accounting Adjustment, £16.1bn Depreciation and £8.2bn reserves which total £46.3bn. So that’s 6.6% of that £697 billion total spend for 2010/11. Even if we use the net (£6.2bn) rather than absolute (£22bn) figure for the accounting adjustments, this is £30.5bn or 4.4% of that £697bn annual spend.

So not surprising then when digging into the more detailed millions - rather than billions – of the formal UK Economic Accounts the story continues. At the first table of those 204 pages includes the note….. “Estimates are given to the nearest million but cannot be regarded as accurate to that degree”.

So there you have it, the standard set by the national accounting is around the 5% mark. Just in real terms - at over £30bn - that’s a lot of accounting adjustment, reserve and depreciation.

Souces:

HM Treasury. Comprehensive Spending Review 2010. 20 Oct 2010. Statistical Annex. Tables A.1, A.3 (col.1), A.4 (col.1), A.5 (col.1)

UK Economic Accounts. Quarter 2 2010 Edition 71. Table A1. Note 1.