Another great article from the IEA, this time by Nick Silver:
Earlier this year I published a report estimating British government debt at £4.8 trillion. However, over the summer the Office for National Statistics (ONS) published a paper which proves me wrong on two counts – firstly, I understated the true debt and secondly, rather than going bankrupt sometime in the future, the UK should probably already be calling in the receivers.
Taking account of the ONS figures, Mr Silver now reckons that “our gross national debt is about £6.5 trillion”
The ONS also calculate the country’s assets as approximately £3.5 trillion, if we include the banks’ balance sheets. We therefore have a hole of £3 trillion to be funded by future tax revenue. This is in addition to future government spending. To ensure the public finances are sustainable in the long term, the government will not only have to reduce the current budget deficit of 9% of GDP; it will also have to run a surplus to “pay off” the £3 trillion. And this assumes that the assets will also generate cash or could be sold off, both of which are pretty unlikely.
Looked at this way, the UK is effectively an enormous unfunded and effectively bankrupt pension scheme, with a large speculative holding in some banks and a sideline in running a small island state off the northern coast of France.
Slowly but surely, the message is getting out: The UK is Broke.
The question is, what is David Cameron going to do about it?