Friday, February 15, 2008

Public Sector Debt again

As the Libertarian Party move closer to publishing our first policy (it's a cracker—you'll love it), the size of the public sector debt is vexing us somewhat. We don't like public sector debt at all, and we'd really like to reduce it. But before we can work out how to do that, we need to know what the public sector debt actually is.

How fortunate, then, that Burning Our Money is prepared to take the time to work it out.
We start with the official National Debt—Brown's figure, as published by the Office for National Statistics and charted above. When last sighted (figures up to Dec 2007), that was £536.5 billion, or 37.7% of GDP. So still within Brown's 40% rule.


We first need to add PFI debt. According to HM Treasury, its discounted present value is now £91bn, but since that ignores this year's new commitments and all payments beyond 2031-32, we'll round it up to £100 bn (see this blog), of which a mere £5bn has been counted in by the ONS.

Next, we need to add the liability for those unfunded public sector pensions (eg see this blog). According to the latest estimate from the IEA, that's another £1,025 bn.

Then we have the cost of decommissioning our old nuclear power stations. That's an explicit taxpayer liability we reckon comes in at around £70bn (see this blog).

And don't forget Northern Rock's £100bn debt, now formally added to the public sector balance sheet by the ONS, even though they haven't yet crunched the precise numbers (see this blog).

Add in Network Rail's debt at around £21bn, all fully guaranteed by taxpayers but excluded from the government's balance sheet.

The grand total is £1,847.5bn.

Or 130% of GDP.

Or £74 grand of public sector debt hanging round the neck of every single household in Britain.

Fucking hellski.
PS Even our £1.85 trillion figure excludes one of the really scary numbers. As we've blogged before, if we include the commitment to pay those totally unfunded state pensions, the total debt figure increases to around £9 trillion. Or £360 grand for every household.

I don't have any stock phrases for that. It's just too big.

So, I'll just say again, fucking hellski...


Travis Bickle said...

And with Gordon, the Uncle Albert of economic stability, at the helm what can possibly go wrong....

fucking hellski indeed

El Draque said...

I recall reading long ago on the Business for Sterling website that the EU had enormous problems looming because of the size of the public debt, and pensions that were unfunded. I think Italy was at 115% of National Debt, at the oficial rate which didn't cover pension rights. It was given as a reason not to join the euro - eventually it would become a debt union and we'd have to pay from our pension funds to cover Italy.
Maybe the euro=zone will refuse to join us.
Actually, in 1815 the debt was 250% of GDP. It didn't stay that way. But then, that was an economic boom time, without a welfare state.

Budgie said...

For years the Brown clique have kept interest rates too low. They were misled by CPI which is artificially low because of cheap Chinese manufactureds.

If interest rates had been commensurate with UK led inflation, Brown would have been less keen to borrow so much, because it would have cost more to borrow (as would the whole population).

Less borrowing = lower national debt.

mitch said...

£360 grand for every household.

Fuckin helski indeed! how many households will ever pay that much tax?

View from the Solent said...

Sheesh. A trillion here, a trillion there, soon you're talking about real money.

Roger Thornhill said...

If you owe a thousand, it is your problem. If you owe a million, it is the bank's problem. If you owe a billion, it is the State's problem. If you owe a trillion, the State will make it all our problem.

Mark Wadsworth said...

DK, although the true total is quite horrific, it is not as bad as that.

Northern Rock - if and when house prices crash by 40%, the total loss won't be more than 20% of NR's headline mortgage assets of £100 bn.

Public sector pensions - the total figure is as high as £1,000 bn as Neil Record says, if you use a discount rate of 1.5% (and there is a strong intellectual argument for doing so). But if you use a discount rate of 3%, all of a sudden, the liability halves.

I find it more useful to account for public sector pensions as a current expense, in other words, how much would a plc have to tuck away to cover the future bill - the answer is about another 40% on top of public sector wages, let's say current spend of £90 bn a year, or another 6% of GDp on top of of official share of State spending as share of GDP. Now that is horrific! I shall do a proper post on this soon-ish.

Nuclear power - I don't like nuclear power, never have done, but this is sunk costs - we have to fix this. Big question is, do we subsidise a whole new wave of this or go for coal?

PFI - this is basically the government overpaying rent. If the market rent on your flat is £1000 a month and you are paying £1000 a month on a short term tenancy you have neither assets nor liabilities. If you are dumb enough to lock yourself into a 25 year rental agreement of £1100 a month, then sure, over 25 years you have committed to paying £330,000 in cash, but you have only committed yourself to overpaying by £30,000. These are two completely different figures.

And trying to account for future government spending like state pensions is silly, you may as well account for future education, defence or police costs. If you do that, you could also account for the net present value of future tax receipts, which would be Enron-style criminal (altho' the German government tried it).

Mark Wadsworth said...

OK, that's it, I've done the numbers, commonsense says that we are in a bit of trouble, to put it mildly.

Anonymous said...

Is "fucking hellski" the most excited utterance you can find? Sounds a bit tame, relative to your usual style.

Pip, pip