Public sector borrowing soaring

By the end of December 2008, the classification to the public sector of, first, Northern Rock and subsequently Bradford & Bingley had added around £130 billion to PSND. When the Lloyds Banking Group and RBS are included in the public sector finances, ONS has estimated that this will add an additional £1–1.5 trillion to PSND. However, this statistic needs to be treated with caution. The way in which PSND is defined means that illiquid assets held by these banks – in the form of lending to businesses; for mortgages and holdings of corporate bonds – are not taken into account. This is important because the banks’ liabilities are generally matched by their assets. What PSND shows is the extent to which the public sector’s liabilities are matched by assets which can be realised quickly.

The effect on PSND of classifying these banks to the public sector should not be interpreted as meaning that the Government (and by implication the taxpayer) has been saddled with a substantially greater debt burden. The Government has also made clear its intention to return these banks to the private sector, so in the long run the impact on PSND is unlikely to be permanent.