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UK public sector could have £4 trillion of hidden debts

Posted by smeddum on July 18, 2010

The UK’s public sector debt could be nearly £4 trillion higher than headline figures suggest, according to new research that highlights the scale of the economic challenges facing the Government.

By Jonathan Sibun, Assistant City Editor
14 Jul 2010


Clegg and Cameron outside the Treasury - UK public sector could  have £4 trillion of hidden debts 

The economic hallenge facing the new Government could be even greater than feared Photo: Paul Grover

The Office for National Statistics (ONS) released a study revealing that the public purse could be faced with £4.84 trillion of liabilities compared with the current public sector net debt figure of £903bn.

David Hobbs of the ONS described the public sector balance sheet as an “open-ended concept” as he outlined liabilities that are considered to be “off-balance sheet” or not covered in official debt measures.

The Government’s stakes in RBS and Lloyds Banking Group could add another £1 trillion to £1.5 trillion, the ONS said, the largest potential liability.

Meanwhile, unfunded public service pension obligations could account for a further £770bn to £1.2 trillion, while unfunded state pension schemes amounted to between £1.17 trillion and £1.35 trillion.

“For transparency, it is important for a broad range of information on public sector liabilities, obligations and contingencies to be made readily available, whether or not included within balance sheets,” Mr Hobbs said.

The report also highlighted a potential £200bn of off-balance sheet obligations from private finance initiative schemes, and £40bn in nuclear decommissioning liabilities.

Hr Hobbs also set out a further £500bn miscellaneous grouping of guarantees and contingent obligations, some of which “are more likely to materialise than others”.

The total in liabilities and obligations came to £3.68 trillion to £4.84 trillion.

The report comes just a day after a study by the Institute of Chartered Accountants in England and Wales (ICAEW) and the Centre for Economics and Business Research (CEBR) revealed that there could be a further £1.13 trillion of liabilities above current debt estimates.

Michael Izza, ICAEW chief executive, said: “While there are important debates to be had about specific spending cuts, I believe that meaningful reform is necessary to underpin sustainable public finances over the long term and create a culture of fiscal responsibility.”

Charles Davis, managing economist for CEBR, said that public sector pension liabilities were by far the biggest consideration.

Mr Davis said the Office for Budget Responsibility had a key role in assessing the debt mountain facing Britain, but it should clearly outline the assumptions it used and total public sector liabilities.

“Clarity and transparency on the public sector finances has never been more vital in the context of recent concerns over public sector debt, particularly in the advanced economies,” he said.

Standard & Poor’s, the ratings agency, earlier this week kept Britain’s debt rating on negative watch, saying it had concerns about the forecasts laid out by George Osborne, the Chancellor.

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