Readers Question: Why are future debt commitments, pensions, PFI repayments, Northern Rock, et al, not part of the National Debt? The treasury must do cash flow projections (?) to calculate how much income it needs. Don’t these factor into the calculations?
It is a good question. A while back, The Institute of Fiscal studies produced a report arguing it should be included. In particular, the pension obligations are effectively, future calls on government spending.
The reason that they are not included, is that National debt statistics are only calculated using existing and past spending. You could argue, there is no inevitability that the government have to spend on pensions. (maybe they could raise the retirement age to 75) (maybe mass immigration will change demographic demands on the state.)
However, in practical terms, future spending committments are important. The Institute of Fiscal studies argue it should be. See: Problems of National debt In particular, the pension obligations are effectively, future calls on government spending. National debt since WW2 at IFS (pdf)
The thing with Northern Rock is that the cost to the government is uncertain. In theory they could be left with significant losses, but, in theory it could also lead to big improvements.
National Debt is a Central Government number for outstanding Government bonds, which are securities of more than 1 year maturity i.e. excluding money market treasury bills, which are of less than 1 year maturity. National Debt may in some countries exclude local government debt and Government guaranteed agency debt. Within National Debt a large percentage (typically 15% – 30%) represents funds owed by one arm of government to another i.e. money owed by government to itself, called non-tradable government bonds. The idea of adding future liabilities such as public pensions to a current National Debt figure is silly. Public pensions are funded out of current tax income and have a low net cost. All Government spending has a same year net cost of 70% or less, and much less over 2-4 years. In the case of pensions, government comfortably funds this out of all tax income from all pensioners i.e. rich pensioners pay for poor pensioners and the pension is akin to a tax discount for the 70% of pensioners who pay tax and who are the wealthiest household segment. Economists should never look at these questions in merely a two-dimensional way. This, however, is what the Institute for Fiscal Studies may be accused of – playing politics, not economics!
Thanks for Comment, Robert
you should be thank full for it