Readers of this site will know that I last estimated government borrowings and pension debts at £1.5 trillion at the time of Northern Rock. Today a new publication estimates it at £1.8 trillion, reflecting the increase in debts to pay for the banking rescues, the further build up in pension liabilities, and the general overrun on public spending and borrowing this year so far. Brooks Newmark has compiled his figures from official sources where possible, and brought together official government borrowing, public-private partnership borrowing, Private finance initiaitive borrowing, borrowing to fund bank capital and loan books and pension deficits.
The BBC wanted to score a couple of points against him this morning. The first was to remind him that the Conservatives did not include pension liability in the figures they used to publish for government debt when in government. That is correct. Mr Newmark responded that this government made companies put pension deficits on their balance sheets, and is lecturing us all on the need for transparency, so they should show the way in their own figures. The second was any incoming Conservative government would not want to change the figures in this way. I trust any incoming Conservative government would immediately order a proper audit of the figures, and publish the true position of the government accounts. Having an honest statement of the starting position is going to be essential to clearing up the mess.
Borrowings and other debts at 120% of National Income represents too large a risk for taxpayers. It is even worse than those figures imply, if the government goes ahead and makes RBS a subsidiary of the state. RBS has a £1.9 trillion balance sheet, larger than our National Income, so the taxpayer would be on risk for a lot if the bank were to start losing money under nationalised management. Northern Rock has been loss making since nationalisation.
A programme to cut the indebtedness of the state would begin by finding other ways to recapitalise the banks than buying shares with public money. It would move on to offering a different deal on public sector pensions for new entrants, which at least entails employee contributions which are then invested in a fund – like the MP and Local government schemes – instead of the pay as you go approach of the civil service. It might also entail only offering new entrants defined contribution schemes rather than final salary schemes to cut the risks. It would certainly include proper controls over administrative and advisory staff numbers, to fight the battle of the bureaucratic bulge.
The government has spent too much and borrowed too much before the recession begins. Now the red ink starts to flow seriously owing to the recession it is going to cause big problems ahead for state finances.