The debt we’re in

In 2009 it was claimed that the true level of government debt was £2,200 billion (i.e. £85,610 per household) and not £805 billion as was reported by the ONS. In a report issued by The Centre for Policy Studies (CPS) in 2009 — The Hidden Debt Bombshell — claims that the official figures did not take into account:

1. the full cost of projects financed through the PFI (£139 billion)
2. unfunded public sector pension liabilities (£1,104 billion)
3. contingent liabilities such as Network Rail (£22 billion)
4. the cost of recent interventions in the financial sector (£130 billion).

These hidden liabilities totalled £1,395 billion (100% of GDP). The true public debt was therefore £805 billion + £1,395 billion = £2.2 trillion (157% of GDP). This was an increase of £346 billion since 2008 – almost £1 billion a day or £700,000 a minute – when the true level of debt was £1.85 trillion (127% of GDP).

At the time the media, including, The Daily Mail, The Daily Telegraph, The Sun, and  The Daily Express, covered this report.

Fraser Nelson and Peter Hoskin writing in the Spectator in 2008 talked about PFI schemes and how Gordon Brown cooked the nation’s books. While it’s true that adding these liabilities to the government debt produces the burden ‘bombshell’ that the CPS claims, it is an ‘old chestnut’. Public Sector pension liabilities have always been ‘unfunded’ (in that there is no fund set aside to service this liability i.e. ‘off the books’). Contingent liabilities are a fact of government administration, as is government intervention funding. In the case of PFI, the private sector is bound to maximise the opportunity given by public sector funded contracts, as it is with similar opportunities in other public sector funded liabilities (e.g. a return of banking ‘bonuses’)!

While the debt burden was enormous in 2009 and continues to grow, it is not unprecedented, you could also say: “Look how much debt the UK had in 1945, yet, and not focus on spending cuts, the government set up a very ambitious welfare state and universal health care.  Despite public sector debt reaching over 200% in 1950, this did not cripple the economy in the coming decades. The relatively huge level of debt proved no barrier to one of the longest periods of economic expansion on records”. This is true, but we now find ourselves in the a time where this ‘longest periods of economic expansion’ is either at end, or will not continue as an exclusive ‘Western Industrialised Nations Club’. So any realisation of  economic expansion  is unlikely to ever mirror that which began in 1950.

This is not necessarily the end of the world, as long as the National Debt, or at least the interest payments on it, are capable of being serviced, which can only be achieved from sustained economic growth, or at a least, sustained economic stability. What is misleading, is the ‘sleight of hand’ used to calculate and portray ‘The National Debt’,  or perhaps more accurately the debt the nation is in, by not counting liabilities that are ‘off the books’.   Such sleight of hand does not mitigate against public sector borrowing as a means of financing public sector spending, or the increases in taxation required to bring public sector borrowing under control. This public sector spending will increase and with it; taxation to service the interest on earlier borrowing, the welfare payments to the growing number of unemployed, the growing (and longer living) number of pensioners, and the servicing of commercial contracts committed to by the government (e.g. PFI), et al. In A very European road to perdition? I alluded to the need for the pool of a nation’s wealth creators to grow faster than the pool of the indigent. Or more accurately,  the maintenance of a nation’s pool of wealth to sustain such indigence. We have yet to see any sign of this happening or even a glimpse of it on the horizon.