The Centre for Policy Studies exposes the true scale the not-so-hidden debt bombshell

Ryan Bourne is the Economic and Statistical Researcher at the Centre for Policy Studies.

Back in October 2009, Brooks Newmark exposed the true Hidden Debt Bombshell of the UK public finances in a Centre for Policy Studies Point Maker.

He showed that the true public debt (including official net debt, public pensions, PFI and Network Rail liabilities) could be conservatively estimated at £2,220 billion - 159% of GDP or £86,390 per household.

Since then, and with all attention focused on deficit reduction, the issue of the national debt as an entity has largely been ignored. A fortnight ago one of our members asked us how the figures from the Hidden Debt Bombshell paper would stand up if calculated now.

Our updated findings, released today, show that the true public sector debt is now £3,617 billion – a shocking 240% of GDP. This figure is so large that it is largely beyond comprehension. It is perhaps more powerful when expressed as £138,359 per household, roughly the size of the average mortgage.

That the figure is so much higher is largely because the official statistics now take full consideration of the total liabilities of the banks which have been rescued, and the full cost of the measures used in the financial crisis that broke in 2008. Both these and a continued budget deficit have increased the official net debt figures from £825 billion to £2,252 billion.

But on top of the official debt figures, there are a number of hidden liabilities. Public pension liabilities have increased to £1,180 billion, PFI liabilities to £169 billion and Network Rail liabilities to £24 billion.

Even with the Coalitions deficit reduction plan, the national debt will continue to be added to throughout this Parliament. Indeed, Budget 2011 showed that official net debt excluding interventions will peak at 70.9% of GDP in 2013/14. It is therefore clear that the extent of UK indebtedness is such that the Coalition must be relentless in pursuing its fiscal mandate to eradicate the cyclically-adjusted deficit during this Parliament.

But is this enough?

A quick look at the ‘Rally Against Debt’ event wall (I’ve explained why I’ll be there here) shows that there are many conservatives who are concerned about the sheer scale of the national debt. There is little morality in using taxpayers’ hard-earned cash for interest payments which exceed the whole of the education budget, even after the deficit is eliminated. The national debt is therefore going to be a continuous burden.

The conclusions from these depressing figures must surely be that the government cannot waver on deficit reduction (it is the bare minimum for the Parliament), must set a rigorously pro-growth deregulatory agenda, and must secure the best possible deal when re-privatising the banks.