UK debt

botchjob

An interesting figure crossed my desk today which made me appreciate that the UK may have quite a distance to travel before glimpsing any light at the end of the debt tunnel.

It's well known that UK national debt is running at around 60% of GDP. But what that doesn't factor in is nationalised debt from the financial sector (RBS etc). Any normal accounting system would take into account all debts but for some reason the national debt figures don't 'count' the financial sector numbers.

If you throw those into the mix, the UK national debt runs to 160% of UK GDP.

Which is as bad as Greece.

Which is bankrupt.

Generali

botchjob wrote: »

An interesting figure crossed my desk today which made me appreciate that the UK may have quite a distance to travel before glimpsing any light at the end of the debt tunnel.

It's well known that UK national debt is running at around 60% of GDP. But what that doesn't factor in is nationalised debt from the financial sector (RBS etc). Any normal accounting system would take into account all debts but for some reason the national debt figures don't 'count' the financial sector numbers.

If you throw those into the mix, the UK national debt runs to 160% of UK GDP.

Which is as bad as Greece.

Which is bankrupt.

That is also measured by the Government and it is a problem I agree.

However, that doesn't make the UK the same as Greece as with the bank liabilities come income producing assets in the shape of things like loans to customers, unexpired derivative positions, share and bond holdings and cash held in reserve. The income that those assets produce helps offset the cost of paying the interest on the liabilities.

Clearly the 4 nationalised banks (NRK, B&B, RBS and LloydsHBOSC&GScottishWidows) were insolvent: if they weren't then nationalisation wouldn't have been necessary and so some sort of liability has been taken on by the UK Government in the name of her taxpayers clearly. It's not reasonable IMHO to lump in the liabilities in their entirety and ignore the assets.

BTW, AIUI the reason the asset side of the balance sheet is ignored when looking at Government debt usually is that most Government spending isn't directly productive in that it doesn't produce a direct stream of income.

A school, for example, clearly produces a product, educational services, and that product has economic value to the country as a whole as it lifts the productive capacity of school pupils beyond what it would be if they remained innumerate and illiterate or at least you'd hope they are! It's very hard to measure the value of that output directly as there is no mechanism of price discovery for state provided educational services. As a result the asset that is the school is ignored in the books.

I'm no accountant but that's how I understand that it works though.

IronWolf

Its not really debt though, its a liability, the UK has guaranteed the debt but it doesn't need to pay anything until there is a default. Now theres bound to be regular defaults on it as thats why the holding banks went bust, but its highly unlikely all of the debts will be defaulted on.

StevieJ

Good to see the banks paying off those govt loans.

Britain's banks are repaying state loans rapidly and are in much stronger shape than previously thought, says the latest Bank of England (BoE) quarterly bulletin.
According to the report, released today, UK banks have repaid £148bn of the £185bn they borrowed since the credit crunch hit liquidity in 2007.

http://uk.finance.yahoo.com/news/BoE-Banks-Govt-Loans-Repaid-skynews-1420737992.html?x=0