Wednesday, October 15, 2008

How Much National Debt does the UK Have?

Bonus Joke: "Why didn't the little boy get any pocket money? Cos his mum's gone to Iceland." - sorry :)
  • The National Debt refers to the amount the government owe the private sector. The Office of National Statistics state that at the end of August 2008, public sector debt stood at £637.4 billion. (or 43% of National GDP). This includes the £87bn Northern Rock nationalisation.
  • With this precedent, it is likely the office of National statistics will include, at least some aspects, of the Government's bailout package as a government liability.
  • If the whole £500bn rescue package were to become a contingent liability and put on the public accounts, that would push public sector debt to over 100% of GDP. It is certainly a striking figure. However, this extra £450bn is a different kind of debt.
  • So far the government has spent an extra £37bn in buying shares in major banks. This will directly increase public sector borrowing. The government will have to borrow more and sell more bonds and gilts. However, the other £450bn doesn't necessarily imply government's will have to spend more.
  • There is £250bn which is to act as a guarantee for bank lending. It will only actually cost the taxpayer if banks default (which is unlikely at the moment)
  • Another £200bn of taxpayers money is to be swapped for bank assets such as secure mortgages and loans. The special liquidity scheme is unlikely to cost the taxpayer anything.
Underlying Public Sector Debt.

Even if we don't include the government guarantees for bank loans and the special liquidity scheme. The underlying trend is for government borrowing to rise.

Forecasts For National Debt

Unfortunately, short term and long term factors both point to increasing government borrowing. In the short term public borrowing will rise because:
  • Recession - leads to lower tax revenues and higher government spending on unemployment benefits.
  • Buying shares in leading banks (£37bn so far)
In the long term public sector borrowing is forecast to rise because:
  • Ageing population. Old people need more pensions and health care. Less young people to pay tax.

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