Brown's 'creative accounting' hides fact that Government is dangerously in the red

The Institute for Fiscal Studies revealed that creative accounting by the Treasury has concealed the fact that the Government is dangerously in the red.

They said the true scale of public debt is now £1,100 billion, equal to 87 per cent of national wealth - more than twice the level that the Treasury itself regards as "sustainable".

The IFS said that £500 million had been concealed "off balance sheet" in Government liabilities for public sector pensions, dozens of "buy now pay later" private finance initiative schemes to build new hospitals, as well as the debts of Network Rail, which are underwritten by the taxpayer.

Opposition spokesmen Sunday night accused Mr Brown of deliberately engineering the PFI deals to keep headline debts down.

Under these arrangements, a private company builds a school, hospital or other public project in return for regular payments over a period of up to 30 years. The Treasury can then score this as day-to-day spending, instead of debt.

Christine Frayne of the IFS said that the Treasury's calculations fail to represent the government's true fiscal position. "It would be nice to see these liabilities taken into account in some way," she said.

Shadow Chancellor George Osborne said: "Now the independent IFS has confirmed that Gordon Brown has run up debts more than double the level he admits. The Chancellor has been rumbled for keeping the scale of his borrowing off the books. No wonder people are asking where all the money has gone."

LibDem Treasury spokesman Vincent Cable added: "What's happened is that the government has rushed into PFI deals in order to hide debt."

The most expensive liability is the bill for civil servants' pensions, which are funded from current tax revenues. They alone would push public sector debt over 75 per cent of GDP if they were included on the Government's balance sheet, when Mr Brown has said debt should not rise about 40 per cent of GDP.

Roger Bootle, economic advisor to Deloitte and Touche, said that the Treasury should be forced to come clean, as other public companies are, to declare the cost of their pension promises.

"Pension liabilities are just there. You can't get away from them," he said. "I don't see why they shouldn't be on the balance sheet."

The former national statistician Len Cook was heavily criticised by commentators and MPs for accepting Mr Brown's view that these liabilities should not be added to the total national debt.

City figures are now hopeful that the decision to give more independence to the Office of National Statistics will lead to a re-assessment.

A Treasury spokesman denied the charge of creative accounting and said that the Government's figures are in line with international rules.

He said: "Public sector net debt is measured using data compiled by the independent Office for National Statistics, using the internationally accepted methodology. Decisions taken about how to prepare public sector accounts are scrutinised by the National Audit Office and Audit Commission."

The discovery is the second piece of embarrassing news for Mr Brown within a week.

The IFS released a study last week in which warned that Mr Brown will soon have to raise taxes by arounf £10 billion a year to plug a black hole in the nation's finances. Families were warned they face paying £325 a year more each in tax in the first years of a Gordon Brown premiership.

The average annual household tax bill is already £1,300 higher than when Labour came to power.