Earlier this year I published a report estimating British government debt at £4.8 trillion. However, over the summer the Office for National Statistics (ONS) published a paper which proves me wrong on two counts – firstly, I understated the true debt and secondly, rather than going bankrupt sometime in the future, the UK should probably already be calling in the receivers.
If the reader will stay with me, I would just like to briefly explain the differences between my figures and those of the ONS (they are quoted in the press with a debt figure of £4 trillion). The ONS found extra debts of £250 billion which I was not aware of (from PFI projects and nuclear decommissioning). In addition, both sides of the balance sheet are included, so if we are doing this it is OK to include the nationalised banks’ liabilities of up to £1.5 trillion as long as their assets are also included. Also, projections of “official” national debt are £900 billion whereas I used £770 billion.
The main difference between our figures is the allowance for state pensions: my figure for this is twice theirs because they have used a GAD estimate from 5 years ago, whereas I have estimated what the liabilities are now. That means that our gross national debt is about £6.5 trillion.
The ONS also calculate the country’s assets as approximately £3.5 trillion, if we include the banks’ balance sheets. We therefore have a hole of £3 trillion to be funded by future tax revenue. This is in addition to future government spending. To ensure the public finances are sustainable in the long term, the government will not only have to reduce the current budget deficit of 9% of GDP; it will also have to run a surplus to “pay off” the £3 trillion. And this assumes that the assets will also generate cash or could be sold off, both of which are pretty unlikely.
Looked at this way, the UK is effectively an enormous unfunded and effectively bankrupt pension scheme, with a large speculative holding in some banks and a sideline in running a small island state off the northern coast of France.