Why our national debt went up by £1,300 billion today

charles hercock

All this music to Ed Balls
George needs to sharpen his act

Scary Biscuits

"The basic point is that these liabilities [bank debts] will be erased once the government sells Lloyds and RBS back into the private sector."

A more accurate statement would say 'might be erased'. The government's equity share in these banks is still underwater and if it ever tried to sell a significant number of shares it is likely they would fall further. Also the net debt figure is arrived at by subtracting the assets of these banks from their liabilities. However, as Ireland has demonstrated, the value of these assets is highly debatable . RBS alone has a gross liabilities of £3 trillion, which through public ownership the UK taxpayer is now responsible for. It would only take a small amount of optimism in the valuation of its assets, or another property crash - to make a huge difference to the net debt of the UK - resulting in a graph several orders of magnitude scarier.

Fernando

I don’t think the inclusion of these bank numbers is very helpful. These liabilities are matched by assets and presumably a problem will arise only if these assets needed to be written off.

JohnOfEnfield

Music to Ed Balls indeed - 'twas he and the government he was part of who allowed it!

Simon Stephenson

Scary Biscuits : 6.34pm

"Also the net debt figure is arrived at by subtracting the assets of these banks from their liabilities."

Er ..... if they are this insolvent, why are they being allowed to continue trading? And what are they doing paying billions of pounds in bonuses?

What in heaven's name was this country doing allowing its banks to build such colossal balance sheets that a whimsical change of mood in asset valuation could lead to a trebling of the entire national debt? Have we gone totally mad?

dorothy wilson

Charles Hercock: why is it music to Ed Balls? The problem manifested itself under a government of which he was a key member.

Dimoto

Apparently, January is the top month for suicides.
Judging by today's crop of blog-posts, presumably most of these suicides must be coffee house readers.

Please get a grip, nothing much has changed in the last month (ot two).

Publius

@Simon Stephenson
"Have we gone totally mad?"

-- Err, yes. I think so. Whom the gods would destroy, etc...

And now, just to seal the hellish deal, we have the reappearance of the ghastly Mr Brown, who no doubt thinks Christmas has come now that his cronies control the Opposition.

toco

Probably not many takers but if anyone is looking for Ed Cooper/Balls try plumbing the drainpipe.Tricky to escape this one but lie he must.

Edward McLaughlin

1300 billion rise in national debt.

13 years of Labour government.

At least it keeps the arithmetic simple.

Andy W

I know it's simplistic but just to get the message home http://www.globalresearch.ca/index.php?context=va&aid=12754
A picture paints a thousand words

Slim Jim

'What in heaven's name was this country doing allowing its banks to build such colossal balance sheets that a whimsical change of mood in asset valuation could lead to a trebling of the entire national debt? Have we gone totally mad?'

Simon, do you remember a certain individual who boasted about giving the BOE independence, creating the FSA, and light-touch regulation? Whoops...

2trueblue

Where are the PFI figures in all of this? Or hasn't anyone got round to tracking down how much exactly the sum is? Hopefully with more and more information of Liebores total incompetance and incontinence with our money being revealed it won't be difficult to shut Balls up.

TomTom

Didn't Ireland do this to avoid the Offsheet arrangements in the UK ? The fact is Lloyds and RBS may not recover - they have merely rolled over liabilities and still call them assets

TomTom

"Er ..... if they are this insolvent, why are they being allowed to continue trading? And what are they doing paying billions of pounds in bonuses?"

If Banks are declared insolvent their host countries are insolvent.

Technically ALL banks are insolvent but are supported by the taxpayer so noone notices. It is a Confidence Trick.....Business As Usual.

Famous dictum: "Banks are a confidence trick against the public underwritten by the Government"

Martyn

This comports with the ONS figues on public sector employment, which showed a simultaneous leap. The issue must be: if bankers in Lloyds and RBS are now classified by ONS as public sector employees, should they not be paid on the civil service scale. No bonus... but have another biscuit with your tea.

Fatbloke on tour

PH

Unlucky big man, another day another deficit story.

As always you do your bit for progressive politics and AD's / GB's reputation.

I would like to highlight your first graph which shows that pre Credit Crunch the national debt of the UK in GDP terms was less than the national debt inherited by TB / GB in May 97.

9 years of above trend heavy investment in the public realm and public services and the debt is less than it was when Sha**er left Downing Street.

So thank you Speccy and keep up the good work.
A small rendition of the Red Flag is now called for.

Rational Man

For those who don't realise this: banks are allowed to lend out more than they take in deposits from savers - this is what's called Fractional Reserve Banking. So all banks have more liabilities than assets; the reason Northern Rock failed is that a "bank run" occurred: the savers all tried to get their money back at once. When that happens a bank is in big trouble. Most of the time, though, they don't face an immediate problem if they've loaned out more than they've taken in deposits. The problem with Lloyds and RBS is that too many of their debts have gone bad - now many debts are unlikely to be repaid, the banks may not be able to give back money to the savers who are using them. This is why the government guarantee is important, and ultimately why they ended up in public ownership.

Dimoto

But Decembers government borrowing was £4B less than estimated.

Gary Williams

Meaningless number unless set beside banks' assets.

Noa.

"Don't worry, though – it's not really as terrible as all that sounds".

Phew, thanks for that Pete.

Of course I've already penned my letter to Bischoff and Daniels demanding that they increase my monthly account fee to offset this glich.

normanc

It's not so much total debt that's the figure to look at, after all it will never be paid back and if all those liabilities do get called in there's no way it can be paid, without borrowing it from somewhere else (probably the people it is owed to, simply swapping one lender for another).

It's the interest figure that's the important one, that one has to be paid every year. I feel it would be educational to also include a graph of debt interest, maybe projected 5 years into the future too.

Chris lancashire

Thank you Dimoto for offering a bit of sanity in this thread. Nothing much has changed, we are still at the early stages on a long hard road but a good start has been made.

R

Is this £1,300B the entire liabilities of the bailed out institutions?

In which case this is just daft, the government doesn’t take on all the liabilities of the banks merely by owning some equity in them, and the banks also have assets. These ‘debts’ are completely different in character to debts owed to holders of gilts etc, so I fail to see the logic of adding them into this graph.

michael

TB election pledge , stick to Tory spending plans for 3 years 1997- 2001.
-he did and it worked.

Keep yer red rag in the sky,
as my career starts flying high.
-I've earned a boss's car at last.
So stick yer red flag up yer arse.

TrevorsDen

Fat head- in 2002 debt as % of GDP was going down. In 2008 it was going up.

But % of GDP is meaningless since the economy no matter what its GDP was incapable of supporting the then govts spending plans.
It ran deficits from 2002, once it stopped following tory spending plans, and as the helpful graph shows debt as % of GDP started rising inexorably.

Perhaps you could check out our friend John Redwood...
'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.'
http://www.johnredwoodsdiary.com/2011/01/22/state-borrowing-and-the-credit-crunch/

I think the other point is that the trend from £323 to £534 billion continued once the financial crisis hit. Se we can safely say that 'normal' Brown/Balls Labour debt increased from 323 to 650 billion between 2001 and 2010.
Year after year Labour ran deficits because its spending was unaffordable

Saying the debt as % of GDP is lower even as the repayments continue to go up and the debt continues to rise is like being happy to be given a bigger bucket to bail out your boat even though it's full of holes.

Thanks for the opportunity to explain that - cheers dumpenkopf

Sir Everard Digby

As GDP includes government expenditure, I see little point in measuring debt as a percentage of it.The more government spends,the more GDP is likely to increase, more so given the expansion of the public sector over the past 13 years. That's not a true measure of any economy.Tax receipts represent a key income source and public sector employees do not pay it in reality,unlike the rest of us.

Other measurese would prove interesting barometers of the country's finances e.g.wage increases in real terms. These appear to have fallen since 2004,which seems odd given your view of AD/GB's plans.
Does this make them,as you put it, dog boilers? perish the thought.

denis cooper

TomTom, clearly the insolvency of a bank doesn't necessarily imply the insolvency of the host country, or the UK would have gone down with Barings in both 1890 and 1995.

denis cooper

Rational Man -

It's not true that banks always have more liabilities than assets.

As I understand a loan extended by a bank will appear as one of its assets, initially balanced by a liability or by a reduction in its other assets depending on how it funded the loan.

The problem comes if it must later write down the asset value of many of the loans it has extended, so that its total reported assets can then fall below its reported liabilities.

TomTom

"It's not so much total debt that's the figure to look at, "

Really ? So we don't need to bother about GDP any more either, especially when it falls 6%. Once Net Debt reaches the levels Britain and Greece are looking at lenders know it cannot repay and simply refuse to lend.

War Loan is outstanding Debt never to be repaid. Noone will fall for that stunt again.

1921 onwards 30-40% British Government spending was interest.....so work out how far Osborne, Cameron and Clegg will last if they keep adding to the Net Debt.

TomTom

"TomTom, clearly the insolvency of a bank doesn't necessarily imply the insolvency of the host country, or the UK would have gone down with Barings in both 1890 and 1995."

Dear Denis,

Barings is small fry RBS is not. If you look at the Monetary System and the fact that London is a GLOBAL financial centre you will note it recycles IMPORTED capital.

Britain has a LOW Savings Rate so essentially IMPORTS money to lend. The Liabilities of the Banks are overseas as are the Assets in many cases.

ONLY in the case of default does the issue arise when the Government takes the Liabilities onto its sheet to protect BONDHOLDERS from the risk of default. The Assets are beyond reach.

The Government does this because RBS with a balance sheet bigger than the British economy can destroy the Gilts Market if it defaults on its Bonds.

Holmes a Court and Alan Bond gave Australia a huge overseas liability by borrowing to go on a global M&A binge, but at least Oz had resources to cover the exposure.

British Banks are TOO BIG for the little island economy. Barings in 1890 collapsed causing Depression but was rescued by Rothschilds and other banks with BofE guidance.

You can hardly compare Barings using BRITISH savings in 1890 to fund Argentina and Brazil with RBS, HBOS, Northern Rock, Bradford & Bingley, Lloyds using wholesale money markets to borrow Short and lend Long.

Fatbloke on tour

Failed Blogger @ 10.33

Stop, please stop.
Your analysis with all its schoolboy howlers, mistakes and brass necked ignorance is stopping the right wing narrative of SpeccyLand stone dead.

AD / GB kept to KC's spending plans for 2 years, till April 99. That is all so the stuff about 2001 / 2002 is all tripe.

Do I need to repeat the stories about the failed 18 years of Tory rule?

Maggie: 11 years in power / 9 years in deficit.

Little investment but she had North Sea oil and the privatisation receipts to keep her going.

The national debt nearly doubled and would have went higher if it was not for the revenues from the 2 year NL boom, and we all know how that ended.

Sha**er: 7 years in office / 7 years in deficit.
No Edwina joke tonight.

The national debt more than doubled.
2.4% loss of GDP ended up as a 7.8% deficit.
Crawled to 97 with his last year having a deficit of 3.5%.
Very limited investment in the public sector.

On the subject of the deficit in April 2008, it was lower in GDP terms than the deficit TB / GB inherited in 1997.

No issue, no argument, those are the figures.

As for the deficit planned for the next 2 years pre Credit Crunch, public spending growth was going to be 1.7% pa and with GDP growth at 2.7%'ish.

Consequently the deficit would have been £30bill pa and would have been a lot smaller than the anticipated public sector investment figure.

The global Credit Crunch caused the deficit to expand.
The global Credit Crunch started in the US due to Dubya's mental growth strategy.

6.4% loss of GDP = Big economic shock.
Credit Crunch = Biggest financial shock in 135 years.
11.1% deficit / 7.6% on current expenditure.
Compare and contrast with Sha**er.

Finally and this really is a classic.
You talk about debt and then you talk about the cost of that debt.

Please compare and contrast the figures of the Maggie era with the recent figures and then please try and make an honest comment:

Debt interest payments:

Maggie - Peaks in the early 80's at over 5% of GDP.
TB / GB - Went under 2% of GDP, now it is 3% of GDP.

Maggie wasted so much more money on debt interest than TB / GB that her lowest figure in 1989/90 is higher than GB's highest figure in 2009/10.

Consequently away and bile yer heid ya rocket.

TrevorsDen

Dear Dumpenkopf -

Who mentioned Thatcher? The dear lady left office 22 years before 2002. Its like Harold Wilson blaming Goebbels for his economic problems.

Very convenient of you to ignore the facts.
The IFS point out that Brown followed Tory plans for 4 years (as opposed to election promises).
In year three he still managed to reduce spending.
I also remember the £30 billion from the 3G sale that Brown took advantage of.
In Labours first 4 years public sector net investment was lower on average than in any other four-year period since the Second World War. (the IFS again)

Its the issue beyond 2002 that is in question - the period where Brown was setting himself up to replace Blair.
Thereafter debt under Brown went up up and up once he stopped following Conservative spending plans. So your remark - quote, 'the debt is less than it was when Sha**er left Downing St' is palpably untrue.

Howlers indeed.

Left to his own devices Brown allowed spending to run away from income and a simple extrapolation shows his policy took debt easily up to £650 billion without the minor irritation of the crash.

Since under Brown GDP was regularly unable to cover spending then talking about %ages is meaningless.

But if we are to look at %ages then the IFS point out in a briefing note (under a heading '7 years of drift')
'By 2007–08, government revenues were 38.7% of national income – approximately the same level they had been in 2000–01. However, over this same period, spending had grown consistently as a share of national income – from 36.8% of national income in 2000–01 to 41.1% by 2007–08.'
'The failure to match this higher spending with commensurately higher tax revenues unwound the improvement in the public finances seen during Labour’s first term'- ie when it was following Tory plans.

The IFS say it like it is ...
'On the eve of the financial crisis, the UK had one of the largest structural budget deficits among either the G7 or the OECD countries and a higher level of public sector debt than most other OECD countries, though lower than most other G7 countries. Most OECD governments did more to reduce their structural deficit during the period from 1997 to 2007 than Labour did. This fiscal position formed the backdrop to the financial crisis. '

Simon Stephenson

TrevorsDen : 7.56pm

It's no good quoting the IFS to Fatbloke, because they're just capitalist stooges who'll say anything to discredit the genius of socialist economics and of the people who put it into practice.

You see, to Fatbloke, it is an unquestionable truth that socialist economic theory is RIGHT, so any poor or disappointing outcomes must be the result either of outside influences, or of the fact that socialist economics wasn't being practised.

TrevorsDen

And Mr S, it was of course 12 years to 1990 - so Wilson had to blame Atlee.

I get carried away - we still have lefties (and heaven forbid tories) invoking Thatcher when she left office 20 years ago.

After struggling to overcome a poisoned inheritance in 79, its sad that the tories gave it all away by shadowing the Deutschmark and then joining the ERM. I would savage Major but well, he was only following the advice of that well known firm of accountants Kinnock, Smith and Brown.

The point in the IFS pre election notes was that both the last tory and (now) the last labour govts threw away all their hard work. We must wonder if it will happen again. It shows how constant you have to be on spending.
From labours point of view 'endogenous' theory failed as the economy did not generate the revenues to pay for the spending.

Fatbloke on tour

Failed Blogger @ all over the place

Where to start, you really have been working hard to prove your own ignorance.

Take 1:

Debt as a % of GDP is the accepted way to deal with the issue as it provides context to the figures and it removes inflation from the comparison.

Never ever quote from a JR analysis, he is mental even by dog boiling standards. On the specifics you try and emphasise I fear he and you cannot tell the difference between state support for the bank's capital requirements and state support for its funding requirements.

Finally you dont seem to understand or accept that the bulk of the increase in state debt is down to the Credit Crunch.

2007/08 = £32bill'ish - PSBR / PSNCR
2008 - 2010 would have seen similar but probably smaller figures.

If balanced budgets are your big issue then why not focus the blame on the two big debtors of the past 30 years:

Maggie + Sha**er?

Take 2:

Please note that the recent stuf from the IFS was not detailed analysis of the UK economy it was a job application from a self publicist on an ego trip.

To my mind much of the IFS analysis over a number of reports was petty and forced, too much a case of playing the man and not the issues.

However needs must, RC got what he was looking for. Now onto your tripe.

GB kept to KC's spending plans for 2 years.
Your assertion falls on two points. KC didn't have spending plans for the years after April 99 and GB produced his first CSR in 98 to show his plans for the future.

Next you claim that GB reduced spending in "Year 3", I take this to be 1999/2000. The question has to be on what measure did GB reduce spending?

1) Cash?
2) Cash in real terms?
3) % of GDP?

Surely after your inability to deal with debt on a GDP basis you are not now trying to score a cheap political point by using the GDP view of spending?

Next up, and don't be shocked a point I may agree with you - public sector investment.

I agree TB / GB should have invested more in the first term but again your analysis and understanding does not do the issue justice.

1) Apples vs oranges - State scope / umbrella was smaller 97-01 than at other times.
2) Two years involved implementing KC's Tory plans.
3) Railway investment was in the private sector even though the state was subsidising RailTrack.
4) PFI was the big legacy of KC and the Tories, there was a lag to getting state spending moving.
5) TB / GB could only see the good side of PPP and did not challenge the Treasury / Civil service received wisdom on the issue.

3G licenses took in £22bill not the £30mill figure you put forward.

I do wonder if you can't get a basic figure like that right what credibility do you have when it comes to the more involved stuff?

4 years after TB's election victory brings you to April 2001 not 2002 as you assert.

The step change in state spending was down to TB and not GB and it related to NHS funding which GB insisted had to be paid for by an explicit increase in taxes so that other areas did not suffer.

National debt, the figure in 97 was higher in GDP terms than the figure in April 2008. There is no way of getting away from this fact, get over it.

The huge increase in public debt since then is down to the global Credit Crunch.

IFS headlines, see above, self publicist on an ego trip. You then repeat his partial and slanted analysis as if it was the gospel truth.

Both of you forget the main player in all this, the fact that after April 2006 GB cut the growth rate of public spending to below the growth rate of the economy as a whole.

Post April 99 and TB / GB's attempt to bring the public realm up to the standards of a modern industrial country after 18 years of Tory neglect meant that he was going to borrow to invest.

He was explicit about it, he invented new financial rules to explain it. RC couldn't be arsed to put this dimension into his analysis because it would spoil the anti GB narrative that was allowing him to build up his public profile.

Surely you are not at the same game?

On the specifics he and you are talking tripe about this supposed structural budget deficit, the borrowing was less than the public sector investment.

The current spending was more than covered by income and the plans were to reduce spending growth in the future as GB considered the 7 years of above trend growth was enough to make a huge improvement to the state of public services and the state of the public realm.

Take 3

North sea oil money financed Maggie's private manufacturing industry slashathon. Some poisoned inheritance.

Sha**er was following the received wisdom of the civil service and Maggie thought it would sort out inflation after her 10 years of failure.

Consequently stick with the facts, stick with the numbers and stop quoting DT received wisdom and media tarts with a not so hidden agenda.

If not then away and thro' shite at yersel ya numpty.