Robert Chote, the director of the IFS, does the invaluable job of totting up in today’s Telegraph just how much debt the country has racked up recently.
“In September last year, public sector net debt stood at just under £515 billion or 36.8 per cent of national income. Since then, the nationalisation of Northern Rock has added a further £87 billion and the Government’s day-to-day borrowing another £30 billion. By August this year, net debt had reached £632 billion or 43.3 per cent of national income, roughly the level that Labour inherited from the Conservatives in 1997.
To that total we will probably need to add another £40-50 billion for the nationalisation of Bradford & Bingley, up to £50 billion for yesterday’s recapitalisation package, plus the more modest costs of compensating depositors who have lost money in Icelandic banks. The Government must hope that the statisticians do not add yesterday’s £250 billion in commercial bank loan guarantees to the tally – or conclude that it has in effect taken control of the banks so that they should be regarded as nationalised industries in the public sector accounts.
Even the additions we can be pretty confident about will probably see net debt heading well beyond £700 billion in the next few months, equivalent to around £14,000 per adult in Britain or around 50 per cent of national income. This is well above the ceiling of 40 per cent of national income that Gordon Brown set himself on becoming Chancellor in 1997. Indeed, we have not seen a figure that big since the last Labour government was forced to borrow from the International Monetary Fund in 1977.”
The problem with Brown’s 40 percent debt target is that it was far too high for a period of prosperity. Britain is heading into an era where government receipts are going to be falling and the bills of social failure increasing with net debt already at 50 percent of national income. One dreads to think how high the debt percentage will be by the time we come out of the coming recession.
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