How did UK build up £4.8 trillion debt ?

PatsytheNazi

Watched a programme on Channell 4 a week or two ago about Britain's 4.8 trillion debt. Now it's easy to see how we accumulated our debt thanks to SeanieFitz, Fingers, Ahern, Neary etc ( which shouldn't be our debt but should be the bond holders debt :mad: ) as well as the crazy increases and pensions to the public service black hole. But most of our problems can to a large degree be traced back to 2002.

Now obvioulsy Britain has a population 12 times larger than Ireland but how has Britain worked up such a debt ? Ok the programme mentioned the huge public service sector but surely the public service couldn't account for 4.8 trillion on its own ? :eek:

http://www.channel4.com/programmes/britains-trillion-pound-horror-story/episode-guide/series-1/episode-1

digme

printing money

Scofflaw

Basic UK national debt is £816bn, but the ONS numbers included a £1 trillion to £1.5 trillion liability for the Government's stakes in the part-nationalised banks, equivalent to the relevant portion of their total liabilities, £1.35 trillion for state pension liabilities, and £1.2 trillion for public sector pensions.

cordially,
Scofflaw

Anonymous1987

digme wrote: »

printing money

"Printing money" actually makes it easier to pay off debt, what the UK did was spend money.

Anonymous1987

PatsytheNazi wrote: »

Watched a programme on Channell 4 a week or two ago about Britain's 4.8 trillion debt. Now it's easy to see how we accumulated our debt thanks to SeanieFitz, Fingers, Ahern, Neary etc ( which shouldn't be our debt but should be the bond holders debt :mad: ) as well as the crazy increases and pensions to the public service black hole. But most of our problems can to a large degree be traced back to 2002.

Now obvioulsy Britain has a population 12 times larger than Ireland but how has Britain worked up such a debt ? Ok the programme mentioned the huge public service sector but surely the public service couldn't account for 4.8 trillion on its own ? :eek:

http://www.channel4.com/programmes/britains-trillion-pound-horror-story/episode-guide/series-1/episode-1

The £4.8 trillion debt seems to relate to the external debt ($9 trillion) and is 416% of GDP. External debt includes both public and private debt owed to foreign residents. According to this list Ireland has $2.3 trillions of external debt, 1004% of GDP second only to Luxembourg at 3,854% of GDP.

Two things to note is that these figures are gross not net figures. Take an example you may owe €50 on credit card but you might have €500 cash at hand. Your gross figure here is €50 in debt but your net figure is €450 in cash. The gross figure thus does not take into account the cash you could use to pay off your debt.

Secondly you may also note that Dublin, London and Luxembourg are all financial centres which attract hedge funds, mutual funds and various types of financial firms which add to the external debt figure. Just think of the IFSC alone.

This list will give you what the debt owed by the government which must be paid through taxes and/or reduced expenditure.

Anonymous1987

Scofflaw wrote: »

Basic UK national debt is £816bn, but the ONS numbers included a £1 trillion to £1.5 trillion liability for the Government's stakes in the part-nationalised banks, equivalent to the relevant portion of their total liabilities, £1.35 trillion for state pension liabilities, and £1.2 trillion for public sector pensions.

cordially,
Scofflaw

Are you sure about that? To me it seems the extra liabilities you mentioned are obligations to pay not borrowing and hence should not be included in the debt figures. The 4.8 trillion figure seems suspiciously close to the external debt figure for the UK although this may be a coincidence.

Scofflaw

Anonymous1987 wrote: »

Are you sure about that? To me it seems the extra liabilities you mentioned are obligations to pay not borrowing and hence should not be included in the debt figures. The 4.8 trillion figure seems suspiciously close to the external debt figure for the UK although this may be a coincidence.

Sure - one can make the same point about the many shocking figures for 'Irish debt' that float about. Whether one includes liabilities on the figure for 'national debt' is fundamentally an accounting decision, but in a crisis (or any downturn) people like to use the largest and scariest possible figure they can find to truly bring home the enormity and uniqueness of the current crisis.

In a boom or bubble, of course, one does the reverse, to indicate the enormity and uniqueness of that. No matter how bad or good the situation, it can always be made more impressive with a little light statistical massage.

a tad cynically,
Scofflaw

Anonymous1987

Scofflaw wrote: »

Sure - one can make the same point about the many shocking figures for 'Irish debt' that float about. Whether one includes liabilities on the figure for 'national debt' is fundamentally an accounting decision, but in a crisis (or any downturn) people like to use the largest and scariest possible figure they can find to truly bring home the enormity and uniqueness of the current crisis.

In a boom or bubble, of course, one does the reverse, to indicate the enormity and uniqueness of that. No matter how bad or good the situation, it can always be made more impressive with a little light statistical massage.

a tad cynically,
Scofflaw

Selective use of debt figures can certainly be abused to support arguments but I'm perplexed at these liabilities. An accounting treatment is not conducive to policy making as accountants generally use historical costs, surely it would make sense to discount the future obligations to their present value for inclusion in debt figures or is this how its done?

Scofflaw

Anonymous1987 wrote: »

Selective use of debt figures can certainly be abused to support arguments but I'm perplexed at these liabilities. An accounting treatment is not conducive to policy making as accountants generally use historical costs, surely it would make sense to discount the future obligations to their present value for inclusion in debt figures or is this how its done?

That depends on who is doing the calculation. The UK's official national debt stands at £850bn, calculated in the usual way as government bonds/debt outstanding. That doesn't include any of the liabilities.

The ONS figures, despite being from an official source, are not the official UK debt figures. They're an attempt to show the 'real debt levels'.

As far as I'm aware, the official UK national debt figures do not include the costs of their bank bailout (roughly the same size again as their official national debt), whereas our national debt figure does, even though our recapitalisation was in the form of promissory notes which will be actualised into cash payments only over the next 10-15 years on an as-needed basis (and therefore are rather more in the nature of liabilities).

cordially,
Scofflaw