The true public debt

This site has long argued that public debt and liabilities amount to £3-4 trillion, thanks to the last government.

Yesterday ONS produced its paper seeking to expose the true state of the public accounts. They think we can add to the £890 billion net debt the last government owned up to the following figures:

Banking liabilities £1- 1.5 tn
Unfunded public service pensions £0.8-1.2 tn
Unfunded state pensions £1.2tn
PFI £0.2 tn
Guarantees etc £0.5tn

That makes a grand total of £4.6tn to £5.5tn

It all goes to show my £3-4 trillion (which excluded the state pension scheme) was a sensible forecast. The majority of this is the result of the last 13 years.

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26 Comments

  1. Lindsay McDougall
    Posted July 14, 2010 at 1:00 pm | Permalink

    Just a moment, we can do something about a lot of this.

    What are the banking liabilities and guarantees? Can we not force asset sales or otherwise simply walk away from these? Let banks stand on their own two feet.

    Can we not steadily bring the public service pensions under control by freezing salaries for 5 years? Is there in any meaningful sense a DEMAND for public service employment.

    Can we not gradually get control of the PFI debt by refusing to let any more PFI contracts, so that the debt withers on the vine?

    In all seriousness, Mr Redwood, are you saying that the amount of government debt that we cannot control is five times the published figure?

  2. Brian Tomkinson
    Posted July 14, 2010 at 1:17 pm | Permalink

    Now please tell us how and when we are ever going to be able to pay off this debt. Those responsible for this wilful economic madness should be held accountable in a court of law.

  3. @David_Wickes
    Posted July 14, 2010 at 2:03 pm | Permalink

    Disturbing figures – and it's good to see PFI as well as the pensions on these books. Do you happen to have a link to the relevant ONS document?

    Happy Bastille Day!

  4. Widget
    Posted July 14, 2010 at 2:07 pm | Permalink

    Brown ought to be (word left out) liable for his wild, profligate 'investment'. It's utter madness.

  5. Brigham
    Posted July 14, 2010 at 2:34 pm | Permalink

    And the (words left out-ed, implying Mr Prescott does not understand the reality etc) Prescott says the coalition is trying to dismantle the welfare state.

    PS please don't moderate my description. I contend it is accurate!!

    Reply: I always delete personal remarks and abuse, whoever the target.

  6. THE VOICE OF TRUTH
    Posted July 14, 2010 at 2:36 pm | Permalink

    Yes, agree – also some good comment on 'BURNING OUR MONEY' – if you add in the state pension scheme the present value of our future state pension burden, measured as a percentage of GDP, is a cool 600% adding another 8 trillion !

  7. Steve
    Posted July 14, 2010 at 2:46 pm | Permalink

    Sounds like a very bad movie – "The Nightmare on Downing Street"!

    Seriously, it just gets worse and worse. The only solution is to pay ourselves less. Sadly, we are not in the Eurozone and this is being achieved by clandestine methods, such as the BoE MPC writing a monthly letter about how incompetent they are at forecasting inflation, keeping pay increases low or zero (for everyone except bankers, of course) while inflation lets rip, changing pension indexing to CPI, and so on and so forth. This was ever the British way, as the average person is simply too dull to understand what is happening. If we had followed the much wiser Irish route of simply cutting pay and pensions, there would probably have been riots in our poorly educated and rather retarded society. The downside of our very British approach is that it may not work as the discipline will not be there in years to come, and in the meantime it beggars savers and pensioners, and pretty much anybody who has been responsible.

    I see no happy future for this country following this route of state-approved theft from the prudent to pay for the excesses of foolish individuals and a mad government. Look at the latest Irish growth figures and forecasts – their approach works! So why are we following the Marxist road of confiscating people's savings and pensions to pay for state profligacy? Unless your Chancellor gets a firm grip on the inflation rate soon, and gives Mervyn King and his useless MPC a hefty kick up the backside, I am afraid that I will no longer be voting Conservative. Screaming Lord Sutch made more sense.

  8. Brett Hayter
    Posted July 14, 2010 at 2:47 pm | Permalink

    Surely it makes sense to include banking assets if liabilities are going to be included?

    • StevenL
      Posted July 14, 2010 at 6:26 pm | Permalink

      If you actually read the report, they do, the debt goes down because Lloyds and RBS have more assets than liabilities (that's if you believe banking assets are being accounted for accurately these days – but that's another story).

      On the logic of adding state pensions, you could also work out the future cost of providing a state education for X million people over the next 40 years based on population growth projections and say that this is a 'debt'. You could even adjust it for projected inflation and do a present value calculation on it to see if the number gets bigger if you wanted.

      I'm not saying I agree with the 'official' Maascricht figure, but the front pages today are being a little sensationalist.

  9. Alan Jutson
    Posted July 14, 2010 at 5:52 pm | Permalink

    I would like to say thank you, for at least attempting to make public knowledge the disgaceful state of our finances, on which you have constantly blogged for the last 2 years. You appeared to be the lone voice, who was prepared to have the courage to put your head above the parapet.

    The fact that others failed to do so, speaks volumes for their lack of courage, or ignorance of the facts.

    I only hope that you now show abolutely no mercy in making public (in a very big way) the absolute financial maladministration of the last Labour Government and the contempt which it had for the electorate with its policy of lies, disinformation, manipulation, and spin.

    How any past Government Minister can now stand for leadership of that Party beggers belief.

    The Social Engineering Experiment has failed yet again.

    Perhaps Peter Mandleson should add a further chapter to his diaries.

    Perhaps some of the bloggers could come up with a title, as mine will be moderated.

  10. Mike Stallard
    Posted July 14, 2010 at 5:53 pm | Permalink

    Yes, you have been saying about the three trillion for years (literally).
    You have also been saying that we can unload the banks as a matter of urgency, halt the recruitment to the Civil Service in the Guardian especially and medicate diarrhoea of spending.
    I look forward to more signs that this is actually happening.

  11. Demetrius
    Posted July 14, 2010 at 6:00 pm | Permalink

    It appears that the mad men really were in charge of the asylum and those of us said to be mad because we suggested these debts were right. Now all I and all of us who pay tax, which largely excludes the very rich and, (named Labour figures removed-ed) and others of their ilk , will have to pay for it.

  12. StrongholdBarricades
    Posted July 14, 2010 at 6:03 pm | Permalink

    So having "revealed" this figure when are you expecting to be able to pay any of the capital down?

  13. Acorn
    Posted July 14, 2010 at 7:07 pm | Permalink

    Let's get real here. The total liabilities are probably near correct. The Market Oracle has been quoting such numbers for the last few years. They are meaningless; most of these liabilities are in pounds Stirling. The government prints the pounds Stirling. Only liabilities that are in foreign currencies are a problem. The UK taxpayer will pay. Any UK government can renege on these pound Stirling liabilities. The only worry for the government is the CASH it has to pay out in any particular fiscal year. Will the UK taxpayer revolt? Inflation is great for reducing government debt and liabilities owed to its own citizens.

  14. Bob
    Posted July 14, 2010 at 7:12 pm | Permalink

    It seems like Gordon Brown has achieved what he set out to do – ruin the UK!

    The coalition government should grab the bull by the horns and close all public sector final salary schemes and switch to defined contribution, with the aspiration being a fully funded public pension system.

    The benefits system needs a major overhaul, and if it’s done properly it will solve the immigration problem thereby killing two birds with one stone.

    • Simon
      Posted July 16, 2010 at 10:29 am | Permalink

      Both your proposals are so obviously the right thing to do and do asap but I have no confidence either will happen during the life of this Govt .

      The state pension also needs to transition towards being fully funded .

      The level of deduction from peoples earnings must be raised so that the state pension pays out just above the poverty level and has an element of redistribution .
      This negates the need for complex meens tested old age benefits which penalise people who save for old age and favour those who don't and cost almost 20 billion a year to administrate .

  15. billyb
    Posted July 14, 2010 at 11:29 pm | Permalink

    I understand that the Norwegians invested their North Sea Oil revenues to fund their state pension schemes. In contrast what did we we do? Maggie gave it all away in tax cuts didn't she? So the lack of prudence could be said to have started with the Tories. PFI was originally a Tory scam too, wasn't it? You're all as bad as each other – blaming your predecessors and passing the consequences of poor housekeeping on to the next lot!

    Reply: On the contrary, the UK was a country with low levels of state debt at the end of the Tory years.

    • Richard1
      Posted July 15, 2010 at 8:57 am | Permalink

      PFI was approx £2bn when the Tories left office – its multiplied by 100. It was conceived by Norman Lamont for capital spending. Brown used it to disguise current spending. If he was a company finance director he would (have serious questions to answer for his accounting practises -ed)

    • Simon
      Posted July 16, 2010 at 11:15 am | Permalink

      J.R. , yes dealing with debt was the priority but beyond that the U.K. used oil revenues to raise the standard of living for the tax payers of the day .

      Future generations of Norwegians will benefit from these invested oil revenues .

      Can the same be said of future generations of Britains ?

      I appreciate hind sight is a wonderful talent and will be looking for evidence of a long term vision in pension reforms .

  16. nonny mouse
    Posted July 15, 2010 at 6:52 am | Permalink

    Do we have figures for the other side of the balance sheet? How much is the state worth in terms of assets?

    Presumably a lot of the bank liabilities are balanced out by the value of the banks, but selling now would be like Brown selling the gold at the bottom of the market. How much could we expect if they were sold at the peak of the market?

    The PFI is a lot lower than I though it would be.

    Reply: Yes, there are offsetting assets. There will be losses on sale of the banks, as the taxpayer has been made to underwrite all the bad and doubtful loans.

  17. Steve Tierney
    Posted July 15, 2010 at 8:48 am | Permalink

    I liked @Steve's comment with the exception of "Sadly, we are not in the Eurozone". There is no "sadly" about us not being in the Eurozone. Mainland Europe are every bit as capable of debasing the currency and stealing from their taxpayers as we are. Except that we'd have no way to prevent it. At least when we do it at the moment it is our own fault.

  18. Simon
    Posted July 15, 2010 at 11:47 am | Permalink

    The vast majority of private sector workers will retire on no pension other than the state pension and negligable savings if not debts .

    Given that the state pension pays out at below the subsistence level , additional benefits will have to be paid to keep them above the poverty level .

    Thus taking the state pension as an expression of future old age liabilities leads to a gross understatement .

    Since we are all living longer isn't there a need to compell people to save for old age through either private or state run schemes ?

    How about some protectionist measures to make life more affordable to British Citizens such as the right to ownership of houses beneath 30 times average earnings restricted to British Citizens only ?

  19. Sally C.
    Posted July 15, 2010 at 12:37 pm | Permalink

    Why is it that every time I switch on to BBC news (the 24 hour version at least) I see yet another Labour politician being interviewed over something or other. They seem to be in denial about losing the last election and the BBC seems happy to promote them and their views.

  20. Mark
    Posted July 15, 2010 at 6:03 pm | Permalink

    I've finally managed to track down the original report which is here:
    http://www.statistics.gov.uk/articles/nojournal/w

    No thanks to the ONS website, which provided no (obvious) link to such a topical item – or the ONS staff who provided a link instead to analysis of the narrow debt numbers rather than these liabilities, despite my explicit request. Perhaps they're uncomfortable with the publicity it has received.

    I will take time to look at it more thoroughly – I'm sure aspects of it will get more detailed discussion in due course.

  21. manicbeancounter
    Posted July 15, 2010 at 10:35 pm | Permalink

    The level of debt/liabilities should be put in the context of the expected future commitments. This is how the value of the pension liabilities has been estimated. Therefore, someone should try to graph in the future costs a percentage of GBP going into the future. Two advantages
    1. This will also help put the national liabilities in context of other countries. Japan's base government debt is much higher than Britain's as a percentage of GDP, but lower interest rates mean funding it is less onerous. On the other hand Greece…….oh dear.
    2. It will also put into stark context how costly decisions about the banks made in 2008 without any due diligence, have helped undermine the public finances for a generation.

  22. christina sarginson
    Posted July 16, 2010 at 12:45 pm | Permalink

    This is really good information thank you John what now?

  • About John Redwood


    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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