Some say the Uk public finances were in good shape if we ignore the costly bank interventions and special measures needed for the Credit Crunch. The figures as published by the Office of National Statistics do not support that view.
Public sector net debt rose from £323 billion in 2001 to £534 billion in 2007 before the crisis hit. During the surge in borrowing during 2008-2010, taking stated public debt to £850 billion and above, the financial interventions only added £20 billion to the large borrowing totals, to pay for the shares bought in RBS. Lloyds and Northern Rock, and to finance the Special liquidity scheme. This financial year so far the government has borrowed an extra £104 billion, without adding to its financial interventions.
The balance sheet impact of the take overs was much larger, but this will only be reported officially in the January government debt figures. The ONS has published provisional figures, suggesting you should add £1.5 trillion to stated public sector debt to allow for the balance sheet liabilities of Lloyds and RBS. Northern Rock and Bradford and Bingley add £150 billion to the national balance sheet. These extra liabilities are of course offset by assets.
There are also £330 billion of contingent liabilities, based on guarantees over assets which may prove to be worth less than estimated.
The large increase in government borrowing came about through spending more than it raised in taxes over a long period. The financial interventions will have swollen both sides of the state’s balance sheet, as the January figures will show. At least we will now have realistic official figures for the state of the UK balance sheet, after months of no official figures for the banks taxpayers own.
The sooner the government starts shedding banking assets and liabilities, returning them to the private sector, the better.