True level of UK government debt exceeds £5 trillion

The Treasury has recently published Whole of Government Accounts (WGAs), which for the first time include an estimate of the UK’s actual debt, including pension liabilities. Firstly I would like to say how much I welcome this development as a massive step towards genuine transparency.

I have been asked to update the figures in the paper A Bankruptcy Foretold 2010 in the light of this development, and explain why the results are still higher than the Treasury’s. Taking the Treasury’s figures at face value, I set out below my estimate of government debt as at 31 March 2010:

Source My estimate (£bn) Treasury estimate (£bn)
Public service pensions 1,408 1,133.3
Gilt edged securities 804 803.8
Provisions 105 105.0
Other liabilities 379 379.4
Current state pensions in payment 1,120 Ignored
Future basic state pensioners 1,211 Ignored
Future additional pensions 467 Ignored
Total 5,494 (392% GDP) 2,422 (173% GDP)

So, my calculation of the UK’s total debt is £5.5 trillion, over twice as much as the Treasury’s figure. My figures are slightly higher than those calculated in A Bankruptcy Foretold 2010 because the Treasury has kindly provided me with more accurate and up to date figures than I had available at the time.

The difference between my figures and Treasury’s are twofold. First of all, for calculating public service pension liabilities I have used a lower discount rate. The Treasury uses the corporate bond discount rate, which is entirely appropriate for company funded pensions schemes, but entirely inappropriate for unfunded public sector schemes, which should use government bond yields. Secondly, the Treasury has not included liabilities from the National Insurance Fund, which I have extensively argued are genuine liabilities and should be included in the WGAs.

IEA Pensions Fellow

Nick Silver is the Pensions Fellow at the Institute of Economic Affairs. Nick is also Director of Callund Consulting Limited, where he provides public policy advice on social security, pensions and consultancy services to corporate clients in all continents, in respect of non-state employee benefits. From 1998-2005, Nick was Director of Silver Actuarial Services. Prior to this, he was Manager of PricewaterhouseCoopers in the actuarial Department, and worked as an Actuary from 1991 to 1997. Nick received an MSc in Public Financial Policy (Merit) in 2004 from the London School of Economics and Political Science (LSE). He also has a BSc Hon in Mathematics from Bristol University. He is a Fellow of the Institute of Actuaries.

15 thoughts on “True level of UK government debt exceeds £5 trillion”

  1. Posted 10/10/2011 at 11:01 | Permalink

    Why do the Treasury lie then?

  2. Posted 10/10/2011 at 18:59 | Permalink

    Well, why stop with pensions liabilities? You might as well say “The UK government spends £700 bn a year, and theres no sign that they are going to reduce this, so the NPV of that commitment at 3 = £23 trillion”

  3. Posted 10/10/2011 at 21:52 | Permalink

    Maybe you could clarify the rate at which those pension liabilities are going to be realised, because without that the numbers aren’t terribly useful.

  4. Posted 11/10/2011 at 01:58 | Permalink

    When will this be paid off by? Will it ever be, and how?

  5. Posted 11/10/2011 at 09:26 | Permalink

    I agree with Mark that this sort of exercise, while the numbers are gobsmacking, doesn’t really tell us a great deal about the burden of “debt” which because of its nature is never going to be “repaid” like a personal debt. State pension commitments are more usefully be expressed as a proportion of GDP at various dates in the future, on particular assumptions about growth rates, demographics etc. That’s a frightening enough picture in itself.

  6. Posted 12/10/2011 at 22:57 | Permalink

    @Len, Mark – I think these numbers are useful, as they tell us something about the inter-generational transfer that has taken place implicitly through state pension schemes (and in other ways). Some of those obligations are firmer than others, but state pensions are a pretty firm commitment. Indeed, in proper inter-generational modelling one should also include health costs (which, in the UK are entirely unfunded yet tend to be incurred at the end of life). As such we have to say “this is an obligation that we have imposed upon the younger generation – shrinking in size relatively” or “you older people are not going to get this free health care that you have assumed that you are going to get”. Calculating the present value of commitments is a standard way of understanding the magnitude of these commitments. On the other hand, for example, today’s policing costs are designed to enforce law and order today and tomorrow’s policing cost designed to enforce law and order tomorrow. That is not the same as a pension commitment where the government says “you have worked this year so we will pay you a pension in 20 years time but make no financial provision for it – we will just hope that there are some young people kicking around to pay the taxes at the time.”

  7. Posted 13/10/2011 at 09:05 | Permalink

    Phillip, yes, the inter-generational transfer is a much better way of looking at it, but it’s easy enough to do this on a cash flow basis, i.e. this year, the retired population will receive £x00 billion in state pensions, old age welfare, healthcare, public sector pensions etc, which by definition are largely paid by the working age population. And in ten years’ time, the transfer will be £y00 billion, so today’s 60 year old, for example, pays his share of £x00 billion but in ten years’ time will get a share of £y00 billion, and so on.

    Further, don’t forget that you can’t have financial liabilities without financial assets (or vice versa – even bank notes and coins count as liabilities in the BoE’s books), so if we say that “The NPV of future govt spending is £z trillion” we can also say that “The NPV of your future entitlements to pension, welfare, healthcare etc is £z trillion”.

    But I’d agree with the broad thrust that the government spends too much money, it’s just that there is a sliding scale between pure transfer payments (i.e. cash or other benefits given to all and sundry) and theft or waste or corruption (money which the government gives to its mates for nothing in return) which is now about a quarter of all govt spending – that’s the bit which I worry about.

  8. Posted 26/11/2011 at 21:33 | Permalink

    Are you including nuclear decommissioning, national rail and PFI?

  9. Posted 18/12/2012 at 15:29 | Permalink

    Just wondering when may these figures be revised / updated please?

  10. Posted 18/12/2012 at 16:28 | Permalink

    at the moment nothing specific is planned. However, I have some work in review on inter-generational debts taking a slightly different perspective and I know that Nick Silver would like to update this work if and when he has time.

  11. Posted 18/12/2012 at 18:47 | Permalink

    What is the total asset value of the UK? Normally when considering debt, an ordinary person like me considers assets. Then I would take one away from the other, a bit like Mr Wilkins Micawber (OK so he talked about income which isn’t the same). Can one of you clever people (no sarcasm intended) tell me where to find this figure? IF not why not. I can find lots of sources for debt figures

  12. Posted 18/12/2012 at 20:42 | Permalink

    Thanks, will keep an eye out.

  13. Posted 18/12/2012 at 23:15 | Permalink

    the government does have an asset register too and the figures are not that difficult to find. Their values are nothing like the level of implicit debts but you are right to say we should not ignore them. Of course, the assets are relevant only in the sense that they might provide (for example) education to provide an income stream of taxes to meet the pension bills. Private sector assets are not relevant to this discussion though as we are only talking here about government gross debt.

  14. Posted 20/12/2012 at 16:57 | Permalink

    Thanks for the reply re assets. I am not sure what I am talking about (!) but it seems to me that if one accepts the idea of a separation between government debt and private debt,one has to be very careful. Theoretically they are of course separate in many senses, but in practise they seem not to be quite so separate. I think it is correct to say the government debt is owned privately (gilts etc) and private wealth is usually calculated by translating in to currencies. So, as we have seen several times, changing the value of the currency is the logical resolution of government debt (other than stopping expenditure or creating additional taxation revenues). So I thought that in order to assess how much devaluation would be necessary to abolish government debt it would be nice to get an estimate of total assets, expressed at the current ratios of, say, Sterling, against physical assets, and then use the current government debt expressed as a numerator of that denominator to give us the amount of devaluation required.
    I realise this is a gross oversimplification, even if it is anywhere near correct, but all of these figures are a little dubious to me, as they cannot be precisely quantified…..

  15. Posted 17/02/2016 at 21:38 | Permalink

    Second, the article claims “It is very unlikely that the government will be able to reduce debt in the current system.” Well that’s an odd claim given that the article includes a chart showing a dramatic reduction in the debt in the fifty years after 1820 and again after 1945.

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