UK Government Debt

Readers Question: I understand that the UK national debt is 1.6 trillion maybe to rise to 2 trillion. Is this correct? and to whom do we owe all of this

The UK national Debt is currently just over 610 billion. See (UK National debt) (This figures includes the recent cost of the Northern Rock nationalisation.

So Why do people give figures saying national debt is 1.6 trillion – 3 times the official figure?

A report by the Centre for Policy Studies think tank says the official Treasury figures  wrongly excludes

  • the cost of public sector pensions liabilities,
  • the hidden costs of Labour’s flagship Private Finance Initiative contracts
  • and debts incurred by Network Rail.

See: Problem of National Debt Statistics

Furthermore, there is then the Government’s £500bn bailout of the banking sector. The government have already spent £37bn on buying shares in banks. This definitely increases the national debt and they will have to sell more bonds to pay for it.

However, the rest of the £450bn package doesn’t involve direct spending, but involves making guarantees to secure bank lending and offer greater liquidity for banks. See: Forecasts for National Debt

So should these future payment commitments and guarantees be included?

It is like having a personal debt of £10,000. But, also in 10 years time you have to spend £6,000 on paying your higher education for your children. Would you think your debt is £10,000 or £16,000?

Also maybe you act as a guarantor for your children’s mortgage for £25,000. If the worst came to the worst you would have to pay the mortgage yourself (or sell the house). Would you think you had debts of £35,000?

Future liabilities are important for evaluating future tax and pension policy, but, it is not correct to say national debt is £1.6 trillion simply because the government haven’t borrowed any where near that amount.

How is National Debt Financed?

By on October 22nd, 2008