The true level of government debt is not £805 billion as currently reported by the ONS but £2,200 billion (i.e. £85,610 per household), demonstrates Brooks Newmark MP in The Hidden Debt Bombshell published today by the Centre for Policy Studies.
At the end of August 2009, the UK's Public Sector Net Debt (including financial interventions) was £805 billion. This is equivalent to £31,320 for every home in the country, or 57.5% of GDP.
However, the official figures do not take into account the full cost of projects financed through the PFI, nor unfunded public sector pension liabilities, nor contingent liabilities such as Network Rail nor the cost of recent interventions in the financial sector. These hidden liabilities total £1,395 billion (100% of GDP).
The true public debt is therefore £2,200 billion (157% of GDP or £85,610 per household). This is an increase of £346 billion since last year, when the true level of debt was £1,850 billion (127% of GDP).
These data are based on cautious assumptions. For example, they estimate the cost of the bank bail-outs to be £130 billion, whereas total liabilities are in the region of £3.84 trillion or 274% of GDP.
The Government's failure to provide transparency in its accounts has five consequences.
1. The disregard for transparency in the public finances undermines the already fragile trust the public has in the political process.
2. This level of debt puts serious constraints on the options a government can pursue for economic recovery. To build out of the recession and put this country on a sustainable economic trajectory, we need a new fiscal framework and a government that is prepared to recognise this.
3. It is time for the Government to recognise the inadequacy of its own fiscal framework. It should admit that the Golden Rules were misconceived. Gordon Brown must recognise that, as the OECD recommends, 'reformulated rules should be forward-looking, ensure medium-term spending discipline and account more explicitly for off balance sheet public liabilities.' We need a new and forward-thinking fiscal framework.
4. It is time to be honest about the true level of debt associated with PFI. All PFI liabilities must be acknowledged on the Government balance sheet. In addition, a 'balance of risks' assessment is needed which should be applied to all local government PFI projects. Any PFI scheme for which the Government is found to be the ultimate guarantor should also be included on the balance sheet.
5. The persistent refusal to accept the true level of national debt reflects the urgent need for an Office for Budget Responsibility to conduct an independent audit of the Government's books. Only when we know the true scale of the public debt can realistic debt targets be made and a substantive policy debate emerge on this country's economic future.
