Author estimates public debt at £4.1 trillion
The author** calculates the national debt at 276% of GDP, compared with the official figure of 43% of GDP.
This includes pension liabilities to public sector workers as well as state pension liabilities which are excluded from official figures. Public sector pensions alone represent a debt of £1,261 billion, or 85% of GDP.
The report undermines the position that the government can afford to borrow more because its finances are healthy. The debt represents a genuine transfer of resources to current generations of voters from future generations of voters.
The UK’s debt is far higher than official estimates because the government’s own calculations defy standard accounting practice by ignoring commitments to pay future contribution-based pensions.
In the absence of radical pensions reform, the debt situation is likely to deteriorate further as the population ages. By 2050, half the population will be aged 55 or over.
The report casts severe doubt on the government’s long-term ability to fund the kind of tax cuts seen in the Pre-Budget Report.
In fact, to avoid bankruptcy future governments will have to raise taxes, cut public spending and probably break their pension promises. The country is particularly vulnerable to further ageing of the population.
*A Bankruptcy Foretold: The UK’s Implicit Pension Debt, IEA Discussion Paper No. 22, Institute of Economic Affairs.
** Nick Silver is Chief Actuary at Parhelion Capital Limited and Director of Silver Actuarial Services. He is a fellow of the Institute of Actuaries and the IEA, and senior honorary visiting fellow at Cass Business School. He is Chairman of the actuarial profession’s Environmental Research Group.