6 thoughts on “The true scale of UK government debt”

  1. Posted 26/04/2011 at 16:14 | Permalink

    Just a thought on the bank debts, don’t they have limited liability? If that is the case, than the only liabilities (from the banks) that the government should include is the amount of money it paid for the bank shares, and that is only if the banks go bust.

    Don’t forget, if the banks return to profit, than they start paying dividends to the government, and the government increases it’s revenue.

  2. Posted 27/04/2011 at 08:28 | Permalink

    Felix – limited liability refers to the nominal value of shares but you are still right that, in theory, nothing further should be lost by the government because the worst that should happen is that they go bust and are effectively sold for zero. However, the point of the rescue was to stop them going bust and, presumably, the government will put in extra capital if they run through their equity capital again – which is not to say they should, just that they will

  3. Posted 27/04/2011 at 12:43 | Permalink

    Chris

    you’re usually much better than this.

    As every first year accountant knows, let alone a smart economist like you, totting up liabilities without adding in assets only gets you a gross debt total, not a net asset position.

    If any or all of these future libailities are being included, to establish the net asset postion requires the further addition of the asset counterpart on the balance sheet. You dismiss the funding for the stae-supported baks on these precise rounds (although the net postion, based on current market capitalisation, is a negative one.) Yet you include pension liabilities wthout including the pensions payments that fund them.

    If, one day, the govt decides that it will no longer levy pensions contributions (taxes, NI or direct contributions), and yet will carry on paying out pensions over the next 40 years, this wold be a legitimate method. But as they aren’t going to do that, this is plain silly.

  4. Posted 27/04/2011 at 20:06 | Permalink

    @ahmed – not quite sure who Chris is, I assume you mean Nick. I am afraid that you are simply avoiding the legitimate debating points with your comment. It is true that, against explicit government debt, you might want to include government-owned infrastructure (so long as it generated a return). That figure is probably about £370bn. With regard to pension liabilities, I assume you mean state pensions as opposed to public sector pensions (the latter have no future national insurance contributions to finance them). There are two ways of looking at the problem. The first way is to think about the total promises that this generation has made to themselves – that way, I am afraid that the NI contributions to be paid by the next generation are not an asset. How can I include my children’s NI contributions as my asset? Alternatively you might think about the scheme as a continuing entity though to do so ignores the risks of shrinking populations and assumes that it will be possible to fund tomorrow’s pensions not from a set aside capital sum represented by physical capital but from future taxes on incomes. A company cannot assume that future sales are an asset today (except in very specific circumstances); when my mortgage goes into negative equity I cannot say to the bank “its okay, my children will earn enough money to pay this off” but you are saying that is okay for a country. Your position can be argued (though I do not agree with it) but I am afraid you state too emphatically that Nick is wrong. I hope the first year accountant learns in the second year the difference between an expected future cash flow and an asset!

  5. Posted 30/04/2011 at 21:32 | Permalink

    Philip – you are right that the government might want to put more capital into the banks if they failed – but don’t forget, that plan was initiated under the Labour government, whilst the conservatives were in favour of letting the loss-making investment parts fail. As F.A. Hayek said, a recession is a restructuring of the mal-investments that were made in the boom, and that the government should do its best to not interevene in the natural process of the markets

  6. Posted 27/11/2011 at 22:19 | Permalink

    I’m in no way financially literate so maybe someone here could give thier honest opinion.
    Even with austerity measures the scale of the debt is so huge that to think it can actually be done before the country implodes is crazy surely? Is this inevitably leading to a point where the pound becomes so undervalued that peoples pensions etc.. become worthless?
    The question above worries me as a sizeable chunk of my income goes into a private pension and has done for years. Should I be looking to invest it differently instead?

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