The Whole of Government Accounts (WGA) for the UK, provides a consolidated view of government. This pretty much represents the MMT view of the government sector.
Some of the quotes from the 2011 accounts are too good to be left hidden away in a PDF.
Paragraph 2.2 (p7) sets the scene:
HM Treasury identifies the entities to be included in WGA in accordance with the legislation that required WGA to be prepared. It is required to include entities that “exercise functions of a public nature” or that are “substantially funded from public money”. The Treasury’s decisions are consistent with the classification of entities to the public sector by the ONS. This is because the ONS takes account of these factors when making their classification decision as well as the degree of control that government has over each entity.
This is corroborated by the auditor in paragraph 7.16 (p50)
To be included in the WGA, a body must do the work of the UK government, be accountable to, or be otherwise controlled by government.
Therefore, unsurprisingly, the accounts include the central bank (§7.75, p76)
the Treasury has taken steps to make the WGA more transparent and complete. The 2010-11 WGA: … consolidated the financial activities of additional bodies, such as the Bank of England
The bilateral relationship between HM Treasury and the Bank of England is similarly explained clearly. Paragraph 3.80 (p28) shows that the indemnities between them are irrelevant at the consolidated level.
A number of guarantees and indemnities exist between HM Treasury and the Bank of England. These are not disclosed in Whole of Government Accounts, as both bodies are included in the consolidated financial statements.
The same point is made in §3.85 (p29)
Arrangements between bodies within the WGA boundary, such as guarantees and indemnities between HM Treasury and the Bank of England, are not included, as they eliminate on consolidation in these accounts.
MMT says that Asset Purchases(QE) are an asset swap which effectively eliminate any Gilts purchased. The accounts agree in §7.50 (p62)
As at 31 March 2011, there were some £1,059 billion of gilts outstanding but the WGA shows a smaller figure of £746 billion (Figure 10). The WGA is not intended to include as liabilities gilts held as assets by entities in the WGA, such as the Bank of England Asset Purchase Facility Fund as part of Quantitative Easing (paragraphs 7.53 to 7.54).
Paragraph 7.54 (p65) expands on this and delivers the killer conclusion:
Consolidating Quantitative Easing does not significantly reduce the overall liabilities of government but it does reduce the number reported as government borrowing. Once intra-government transactions are eliminated, the scheme represents an exchange of gilts (liabilities of the National Loans Fund) for central bank reserves (liabilities of the Bank of England).
In addition the Consolidated Statement of Financial Position (p94) contains the term “Financed by Taxpayers’ Equity”. Which is exactly correct. The net savings of the non-government sector is indeed Taxpayers’ Equity.
When you apply the International Financial Reporting Standards to a set of government accounts, the MMT viewpoint arises quite naturally from the numbers.
First published 10 Mar 2014