Posted by Christie Malry on November 11, 2010 at 11:56 pm
Channel 4 ran a programme last night entitled "Britain's Trillion Pound Horror Story" which, in typically sensationalist terms, sought to expose how appalling our national debt is. They produced a figure for the national debt of £4.8 trillion, or £77,000 for every man, woman and child in the UK. You can watch the programme on 4OD here.
There were some truly terrifying moments in this show. How on earth can Alan Johnson, Shadow Chancellor, not know the figure for the national debt? I know he would accept that he's a bit of a muppet, but it's unacceptable that he can really have no idea.
I was pleased to see them putting the boot into Quantitative Easing, which is just printing money and, even though economists have given it a fancy name, is already leading to high inflation. At precisely the same time that Mervyn King, having failed to keep a grip on inflation - despite his mandate to do only that - says that interest rates won't be raised to combat it.
The programme also did a very good job of explaining the fundamental imbalance in our economy, with too many public sector jobs, too many service jobs and too many 'secondary tax spending' jobs (those that rely solely or largely upon the public sector). It skewered the false claims that government spending is ex ante good for the private sector. Richard Teather (a sometime dedicated Ritchie-basher) did a good job of explaining 'tax churn' by which the state takes straight back money it appears to give to people in benefits. It's a con, yet we have allowed ourselves to be conned.
The programme finished with a compelling study of Hong Kong, which kickstarted massive growth off the back of low taxation. Having been behind Britain in the 60s, it is now ahead of our economy measured as GDP per head. It could have been us, if only we hadn't splurged so much money on the state.
Lefties hated it. Twitter was abuzz with people complaining that it was a giant advertisement for the Conservative Party (hah, if only... the Tories are within a cigarette paper of Labour's insanely risky high tax, high spend plans), or that it was the Tea Party setting up stall in the UK. For sure, it was deliberately right-wing, but that isn't, in itself, a reason to ignore it. The programme left socialists completely unable to answer its main charges, because its message is - let's face it - a statement of the bleeding obvious.
But how did they get to £4.8 trillion? Unfortunately, here the programme wasn't entirely honest with us. The headline figure for debt is about £1 trillion, so they are claiming there's a further £3.8 trillion that isn't properly recorded in the 'official' figures. But they didn't say what.
We can get a bit of help elsewhere. The ICAEW published a report a couple of months back which claims that there's a further billion or so. The largest elements of this are off-balance sheet debts arising from PFI deals, other contingent liabilities, such as guarantees of National Rail's liabilities, and - the biggest of the lot - unrecorded public sector pension liabilities. These are genuine liabiltiies, as accountants and ordinary people would recognise them, and they should be recorded in our national debt. But they're not easy figures to estimate. The pensions figure in particular is very subjective. Your assumptions over what the discount rate for future payments should be has very significant impacts on the final liability figure.
Another report, published by the ONS, analyses the problem in more detail and produces broadly similar results. So where did Channel 4 get their figures from?
I suspect they've been a bit naughty, and have included within their estimate a figure for the state pension payments due to be paid to those currently working. These are gigantic numbers, for sure, given the number of people that will get them. But they're not liabilities, in the accounting sense of the word. A liability is 'an obligation to transfer benefits as a result of past actions or events'. Yet the government has no current obligation to pay a state pension to anyone who is not yet retired.
Yes, you read that right - no current obligation. This is because the government can always change the law to deny you your pension. In fact it's already done this to some extent by proposing to increase the state pension age. It may yet abolish any rights under SERPS/S2P, given that nobody quite understands what's going on there. It's even technically conceivable that the government could abolish the state pension for current workers altogether, although it would face riots in the street if it did.
But, without the figures we can only speculate. So, would Channel 4 care to tell us where their estimate came from?