The national debt – from billions to trillions

Shortly after the expensive and clumsy nationalisation of Northern Rock I made a speech to a large dinner in London that we needed to move on from talking in billions about public finance. I suggested we needed a new larger unit. I proposed the “Rock” or £100 billion as the sensible unit for account, management and discussion.We were clearly moving into an era of big government, where the odd billion was not worth discussing. It was just small change. A “rock” would buy you the NHS for almost a year , or a mortgage bank. Strangely the government thought they could afford both.

In a few short months my proposal was blown out of the water by the terminal fascination this government has with RBS. Now we all talk in trillions, if we wish to discuss the true and dreadful sate of the public finances.

I had come to the conclusion that the true liabilities of the state – including pension deficits, Northern Rock, PFI, PPP and Network Rail as well as the public debt the government recognises, reached about £2 trillion before the RBS adventure. On top of this today we should add the £2 trillion of the RBS balance sheet, now that we own or about to own practically all the shares and clearly stand behind every last bad debt and foolish investment this wretched bank has ever made. Or if you prefer not to consolidate this errant and overghty subsidiary, you need to account for the £0.5 trillion banking package last autumn which failed to work as intended, and the guaratees now being crafted for banks that will exceed another £0.5 trillion.

If you were being kind you would conclude the taxpayer in on the line for at least £3 trillion, or twice the National Income. On private sector accounting rules it would be at least £4 trillion.

The public accounts are being shot to pieces. Usual debate about whether to increase spending by a few billion or to cut taxes by a few billion have become futile against this huge move to mega buck spending on banks. The government has developed a dangerous and expensive habit of propping banks in the dearest way imaginable. I have not been blogging on the issue of Goodwin’s pension pot, because it is a small diversion from the collosal waste of public money going on in subsidising and backing toxic debt

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19 Comments

  1. Ian Jones
    Posted March 1, 2009 at 9:10 am | Permalink

    It will get worse, look at what Obama has just put out as a budget. Our glorious leader is off to see Obama to help him save the world and what’s the betting he comes back all enthused about socialism.

    Expect to see lots of spending and redistribution in the next budget as well as taxes on the rich (who will bugger off, so really the middle class)……

    Also interesting how the 2 banks which have needed the trillions spent on it are Scottish…. coincidence?

    • James Morrison
      Posted March 1, 2009 at 11:52 am | Permalink

      Hasn’t Gordon Brown signed the Scottish Claim of Right (or whatever it may be called) meaning he promises to put scottish matters first in everything he does?

      Would certainly explain his obsession with the RBS…..

      How could he have possibly been allowed to become Prime Minister for the UK when (if) he has signed this pledge?

      Then again, when does any pledge he makes mean anything!?

    • brian kelly
      Posted March 1, 2009 at 1:15 pm | Permalink

      No, no coincidence, methinks. Ditto Northern Rock.

  2. Brian Tomkinson
    Posted March 1, 2009 at 10:40 am | Permalink

    If you don’t want to call for a vote of no confidence, why not take up Simon Heffer’s suggestion, in yesterday’s Telegraph, of a Commons motion to reduce the salary of the Prime Minister for making such a mess of things. We can’t go on like this but no one seems prepared to try and remove Brown before he has completely wrecked the economy. I know it’s not easy but no one is even trying. I hope that when David Cameron returns we see some real determination to stop the rot.

    Reply: It’s not that I don’t want to argue for No Confidence in the government – goodness knows I have no confidence in them. The issue is what would it achieve given we cannot win the vote, and given that it might unite Labour temporarily. The Heffer suggesiton is good one, and very topical when the government is talking about cutting someone’s pension! As others have said, cutting people’s pension and pay in the public sector could become catching.

  3. Colin D.
    Posted March 1, 2009 at 11:13 am | Permalink

    If I were in government, I would bang on about the risk of deflation but in reality engineer high inflation to devalue the currency and reduce the debt. This would be my secret weapon to ‘manage’ these vast numbers. This is exactly what the government is doing.

  4. Stuart Fairney
    Posted March 1, 2009 at 11:30 am | Permalink

    Exactly right, Goodwin is a sideshow and a distraction from looming national bankruptcy, nothing more.

    (I am forced to ponder however, if we stop rewarding failure from the public purse, is it not incumbent on the PM to hand back his pension?)

  5. Paul
    Posted March 1, 2009 at 12:30 pm | Permalink

    There’s a common behaviour with personal debtors where the debt they owe gets so large that any individual purchase seems like a drop in the ocean. It’s illogical, but they think “if I owe £100,000, then spending another £80 on shoes is neither here nor there and will make little difference to the overall loss”

    I think McBroon is currently in this phase (adding a few zeros to the numbers). What’s another £90bn between friends, eh ?

    Most debtors who behave in this fashion end up bankrupt, or on one of those Voluntary Agreements. The latter isn’t an option for a country.

  6. THE ESSEX BOYS
    Posted March 1, 2009 at 1:35 pm | Permalink

    JOHN – Is it possible for you to respond to Alan Jutson’s point yesterday – SEE BELOW – or direct us to a ready-source as we’d like to give our voter research friends a copy of the comparison to use in discussion groups with floating voters (amazingly they still exist!). Thanks in anticipation.

    ALAN JUTSON 28/2

    I said many months ago that when eventually you get into Government , but preferably before, just in case you do not (unthinkable I know, but you never know) you (the conservative Party) should do a balance sheet showing all of Government debt racked up by this Government against the balance sheet of when you left office in 1997 as a comparison.

    All debt should be included in both cases. PFI, Bank bail outs, Gold reserves etc

    ESSEX BOYS 28/2

    We agree that this is a very clear way that voters would readily understand – 1997 v 2009

    Reply: Yes, I agree it is a good idea. I have been setting out the main changes to the balance sheet on this site as the huge liabilities are built up. The Conservatives have said they will need to do an audit of the true state of the finances on arrival in office

    • alan jutson
      Posted March 1, 2009 at 3:57 pm | Permalink

      Essex Boys

      Many thanks for the support for the idea, I think it has some legs and could run if handled correctly.

      All figures would have to have independent support in order to be credible, but it doesn’t need to stop there.

      There could be other campaigns.

      We could also list all of the three thousand or more new laws passed by this Government and the EU and then ask if people thought they were more free, more democratic, more safe and thought crime was going down.

      Never know John your blog may yet be seen as the green shoots of thought for a Tory victory at the next election, whenever that comes.

      On another subject I see Harriet Harman (Tv interview today) and Gordon Brown are now suggesting/thinking of trying to use retrospective legislation to claw back some of Mr Goodwins Pension entitlement.

      Sorry but you have to vote against this, distastful as it may be, as there should be no place for retrospective legislation in a Democracy.
      Unfortunatelty Gordon has already got form on this, with some Tax changes in the past.

      Retrospective changes in the Law could affect us all in unforseen ways, as Laws are not made for individuals, but the whole population.

  7. Jeremy Stanford
    Posted March 1, 2009 at 1:43 pm | Permalink

    Hindsight is a wonderful thing. Following JR’s foresight is even better. But if the reponse to the financial crisis had begun with quantitative easing would the taxpayer not have been saved much of the trillions in liabilities the government has so carelessly dumped on the nation?

  8. alan jutson
    Posted March 1, 2009 at 1:51 pm | Permalink

    I fear you may have to start talking about RBS Pensions in the future if the report by Simon Watkins in the Mail on Sunday is true.

    It suggests that ALL RBS employees have a right to a fully paid up Pension under the old scheme (pre 2006) if they are made redundant at any time after they are 50 years old.

    If true this would mean if you joined in 2005 and were made redundant now at the age of 50 or more you would qualify for fully paid up Pension rights.

    Again if true, this will mean millions of pounds more of Taxpayers money to fund a very, very, very generous Pension Scheme for thousands of people.

    Contrast this with the Equitable Life debacle.

  9. Barbara
    Posted March 1, 2009 at 2:13 pm | Permalink

    Interesting, too, to see that the government – having rammed through the fluoridation of Southampton’s water supply, against the wishes of 75% of its people – has said it will indemnify the local health authority against any legal challenges. What is THAT going to cost? Is it an ‘unlimited liability’ kind of guarantee? Do they think money grows on trees?
    The people of S’oton do not want this – the water companies didn’t want to do it – so the government made the health authority force it through. Seems like the taxpayers will be reduced to suing themselves (in the shape of the govt), before footing the bill themselves to pay compenation to themselves, for something nobody wanted in the first place.
    Completely mad – and completely unnecessary.

  10. Alison Saville
    Posted March 1, 2009 at 4:02 pm | Permalink

    This may be a very foolish question, but I ask it in all seriousness. I do not understand economics at all well, and am baffled by the vast sums of our money being lavished on the banks and others by our Government.

    How much money is there in the whole UK economy?

    If I knew how many UK pounds exist in total, notionally or physically or both, I think it would give me an idea of what proportion of it figures like £3 trillion might represent.

    Reply: The national turnover is around £1.5 trillion a year. Money is largely held as bank deposits. The amount of bank notes is much smaller than the national turnover.

  11. Bazman
    Posted March 1, 2009 at 6:18 pm | Permalink

    When the taxpayer is up for trillions. The private companies that owe this money are ‘owned’ by the taxpayer. Their business is the taxpayers business by default. Dogma is suspended and the taxpayer now calls the tune. Not the red right and their chums as their lies and scams are now self evident. It’s not so strange that all politicians are still so soft on this.

  12. mike stallard
    Posted March 1, 2009 at 9:10 pm | Permalink

    At the beginning of last year, I managed to get hold of the government’s expenditure. The total was something like 600 billion pounds. We were fighting a war in two theatres at the time and the total expenditure on defence was about 3.5 billion. The Social Services seemed to be in the sort of 200 billion area, I seem to remember.
    Now the government,as you say, is talking trillions.
    It has not got the money.
    The only hope is that the banks will suddenly spring into life and become milch cows. Let’s be frank: this is not happening at the moment.

    So what could the British world look like in 2012?
    1. There will be long lasting power cuts. (Christopher Booker).
    2. All taxes (including Council Tax, VAT and other purchase taxes) will have to go well over 50% of income – perhaps up to 75%?
    3. There will be serious strikes as the millions of State Employees get their pensions and jobs axed.
    4. The dole queues, homeless and hopeless will increase exponentially as the State’s money runs out.
    5. The pound sterling will sink even lower than the busted Euro.
    Happy holidays!

  13. Man in a Shed
    Posted March 1, 2009 at 10:01 pm | Permalink

    Perhaps the opposition might think of declaring that it will not, as a future govt, stand by the debt being run up by the current government unless there is a general election to legitimise them.

    After all what is happening now is a current parliament is binding future ones, which is against our constitution.

    Its an extreme option, but it would bring things to a head very quickly.

  14. Nick
    Posted March 2, 2009 at 9:35 am | Permalink

    How do you come up with your pension figures?

    State employee’s pensions we know are around 1 trillion.

    Where have you got your figures for the state pension, and state second pension?
    reply; set out in Economic Competitiveness Report

  15. John Charlton (an ex-Labour Voter)
    Posted March 2, 2009 at 11:07 am | Permalink

    John

    I warned anyone who would listen about this meltdown going back to 2004 (eg David Smith in the Times & Liam Halligan in the Telegraph – both told me that I was wrong – the fundamentals of the economy were strong!); but the thing I still can’t get my head around is that how has Brown been able to get away with the it’s a ‘Global problem’ line?

    He inherited a good set of books, had ten years as Chancellor with full control over economy, big majorities and a benign economic backdrop but look at us now!

    His finger prints are all over the causal factors:

    HE created the Tripartite ‘regulatory’ system which FAILED
    HE lectured other Finance Ministers about how his ‘light touch regulatory’ system was the driving force for economic growth
    HE removed tax relief on pensions which meant people were looking for somewhere else to park their money (many chose property)
    HE removed house prices from the inflation figures
    HE boasted that he had abolished Boom & Bust
    HE ignored warnings from Eurpoean Central Bank & IMF that his spending was way too high – giving massive borrowings in a period of growth leaving us totally unprepared for a downturn

    He accepts no responsibility and is allowed to get away with it.
    Can you help me understand how come around 30% of the electorate plan to vote for ‘more of the same please’?

    Why is Brown not seen as responsible for this calamity?

  16. robbie prentice
    Posted March 9, 2009 at 10:19 pm | Permalink

    the only way to solve the debt problem is go to the people of this country,explain so as everyone will have to share this burden,by putting 15% on all foodstuff to pay only the national debt and nothing else, i dont know how long this would take i have other more plearurable measures that could be used, confidence in this country,will only return when the people are told what we are doin about this burden, not that we are nearly bankrupt, sorry about the english
    yours sincerley robbie prentice

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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