Wednesday, December 19, 2007

National Debt

Earlier this month, your humble Devil discussed the massive amount of money spent servicing the UK National Debt.
Servicing the UK's central government debt, i.e. simply paying the interest, cost £27,424,000,000 in 2006/07 and is estimated to cost £29,100,000,000 in 2007/08 (Table 1.15: 2.1MB PDF).

What I didn't manage to find was what the total National Debt was: now I have.
Public sector net debt, expressed as a percentage of gross domestic product (GDP), was 36.3 per cent at the end of October 2007, compared with 36.1 per cent at end of October 2006. Debt peaked at 43.8 per cent of GDP in June 1997, its highest since the mid-1980s. The debt ratio then fell steadily as public sector finances improved, reaching a low of 29.8 per cent in February 2002. Since then it has risen. The Pre-Budget forecast for the end of March 2008 is 37.6 per cent.

Net debt was £511.3 billion at the end of October, compared with £480.0 billion a year earlier. The Pre-Budget forecast for net debt at the end of March 2008 is £541 billion.

But, as Wat Tyler points out, this does not take into account the Public Sector Pension Liability (or, if it does, only a fraction of it).
Public Sector pensions—the scandal of largely unfunded public sector pensions continues (eg see this blog); in the face of pressure from their union paymasters, Labour backed off increasing the retirement age from 60 (or even below in some cases), and the total cost to taxpayers is currently put at about £1 trillion—twice the officially declared National Debt.

Truly, the Gobblin' King's prudence has put us in a horrendous position: we are, essentially, in debt to the tune of an entire year's GDP. This is, to put it mildly, not a good position to be in. If we do tip into recession next year, this scenario is only going to get worse, especially as the government are still spending money like water.

Not least on bailing out the shareholders of a certain northern bank, whose main depositors happen to be Labour voters.



Today, Darling has extended the taxpayers' guarantee to virtually all Northern Rock's borrowings: retail deposits, wholesale deposits, unsecured borrowing, secured borrowing where the security actually turns out to be insufficient, collateralised and uncollaterised derivatives, onshore and offshore. The whole kit and caboodle.

Which totals c £100bn.

Or £4,000 for every household in Britain.

(Yes, the HMT press release excludes subordinated debt, but that's only a few bill.)

So now we're formally guaranteeing a bank that remains fully owned by shareholders. It requires a breathtaking disregard for taxpayers' interests to even contemplate such a situation.

What the fuck is going on? Seriously, how long do NuLabour think that this government is going to last? They are spending money like they are just trying to empty the piggy-bank as swiftly as possible so that whoever takes over from them is utterly cunted.

In the name of fuck, Darling has effectively added another £100 billion to the National Debt! And this is a government that is already spending, on current debt figures, some £60 billion a year more than it is making in tax receipts!

Are they insane, or what?


Nick Drew said...

spending money like they are just trying to empty the piggy-bank as swiftly as possible

Yup, it's a scorched earth strategy, & goes beyond just speding the £££

so who knows what's to come next

Kay Tie said...

They aren't spending money on Northern Rock any more than you are "spending" money by putting your cash into a savings account. In strict accounting terms, he hasn't added anything to the National Debt since the borrowing to lend to Northern Rock is offset by the debt from Northern Rock.

You shouldn't mix up money lent to Northern Rock with the never-to-be-seen-again money pissed up the wall on the public services.

Devil's Kitchen said...

Kay Tie,

OK, I'll admit to being a little disingenuous and melodramatic in that particular case.

Let us say, instead, that Darling has added about £100 billion of liabilities to the taxpayers' account, by promising to guarantee roughly £100 billion of unsecured lending.

If The Crock goes under, we'll see almost no return...


Rob said...

No they're not insane -- they're just Labour.

It's a state of mind -- they can't help it.

Mark Wadsworth said...

What ND says, it's scorched earth.

DK, Kay Tie, the true cost of the NR bail out is neither £nil nor £100 billion, the cost is whatever the shortfall on liquidation will be, maybe around £20 billion, tops.

vervet said...

DK - do your figures include future libilities under (off balance sheet) PFI contracts ?

If not then I believe that the doo-doo is even deeper than you suggest.

Kay Tie said...

"guarantee roughly £100 billion of unsecured lending."

Oh, it's secured all right. As secure as the housing market itself.

If house prices fall by 40% in real terms (maybe 30% nominal), which is typical for a housing market peak-to-trough, and if all the mortgages issued by the Crock are currently 100% LTV, you'd expect Darling to lose us £30B. But I doubt that it's anywhere near 100% LTV.

Of course, if inflation breaks loose, that "nominal" might be rather closer to 0% (like it was in the '70s). In which case i hope Darling hasn't issued Government debt to fund the loan to the Crock in the form of index-linked gilts..

Still, £30B is only 1.5 ID card projects. So let's not worry, eh?

Devil's Kitchen said...


I don't believe so, as the vast majority of PFIs are off balance-sheet. I believe that Burning Our Money last estimated that debt as around about £100 billion.

Kay Tie,

BOM seems excited about the Crock, and he generally knows what he's talking about. Unlike me, obviously...


mitch said...

"Are they insane, or what?"
You really need to ask?

Roger Thornhill said...

Yet again the Government is simple shopper. It should have gone in with a hard "no prisoners" attitude saying that the jobs etc are NOT the issue, just the liquidity. Because they crap on about labour voters, erm, I mean jobs in the NE, the bidders and the market know the longer they wait, the cheaper the assets will be and the shorter they will have to wait after paying for them until the turnaround. It is a win-win for the buyers and WE lose either way.

Anonymous said...

where does all the money come from the government keeps borrowing?