UK ‘real’ Debt to GDP reaches 150% whilst the Tories ADD 32% onto the national debt

When the Tories and the Lib-Dems took office in the UK back in May 2010 they did so on promises of reducing government spending and reducing the debt and deficit. So here we are nearly two years into the coalition government, let’s take a look and see how they’ve been getting on.

First let’s take a look at debt. The last full month before the coalition government took power was April 2010. Here is the ONS report from May 21st 2010 covering the month of April:


And from the latest ONS public finance report this week:

Yes, you did read that correctly, this ‘faux-stere’ coalition government have INCREASED the national debt of the UK by some 32%. That’s right, a third of the entire national debt of the UK, accumulated over the last couple of hundred years, has been added by the Tories in just 24 months all under the guise of ‘austerity’ – it really does beg belief that nobody seems to be calling them out on this rather simple point.

In terms of GDP the national debt to GDP ratio has risen from 53.8% to a record 66% – of course, these numbers all exclude the debt we’ve added during the financial crisis bailing out the banks – more on that later.

Apparently this is what austerity looks like:

But here’s the kicker – you see in all those examples above there is a curious phrase “excluding financial interventions” or in other words excluding all the money we’ve borrowed/guaranteed and given to the banks. When you add that debt into the already massive debt pile this is what get:

So what about the amounts we’re borrowing as a country, how has that been going?

Again from the latest report ONS report we can see that the UK borrowed some £18.2bn for the month of March 2012:

So how does this compare to how much the UK borrowed in March 2011?

The UK borrowed some £200m MORE in March 2012 than it did in the same month in 2011. It is usually at this point that some shill for the government will point out that the budget deficit is being reduced and the amount the government needs to borrow is going down.

For the financial year 2010/11 the Tories borrowed £136.8bn – and for the financial year just completed this month the Tories borrowed £126bn – a reduction of nearly £11bn or about 8%. Firstly this reduction is tiny, it’s akin to a person borrowing say £100,000 last year in order to pay his bills and then patting himself on the back for ‘only’ borrowing £92,000 this year to pay his bills when he was on the brink of insolvency last year anyway.

But the most important thing about the deficit isn’t the amount that it is being reduced by, but rather the amount itself in the first place.

Back to our example of the guy who borrows £100k, now let’s suppose he has a mate, both of whom have the same job, same salary and same amount of debt at the beginning of last year. Last year his friend borrowed just £100, then this year he borrows £95 – he’s friend just reduced his borrowing cost by 5%. So in actual fact this guy reduced his borrowing LESS than the guy who borrowed £100k. This is why it is so disingenuous to look at the borrowing levels in terms of what % it has been cut. It is the TOTAL amount that alway and forever is the only thing that matters – and in that matter the reductions have been piddling.

So to help you understand what £126bn looks like compared to the historic amounts the UK borrowed, here’s a snip from the 2008 UK government budget:

Just take a look at that last row of numbers – those are ‘typical’ amounts of borrowing that the UK has seen over the past decade until 2009. It’s also worth remembering that those ‘typical’ amounts were still far to much and contributed to the mess we are in today.

And if you really want to laugh, look at the last number in that row. Back in 2008 the Labour government were forecasting just needing to borrow £23bn if they were still in office today. Now compare that to how much the Tories borrowed last year – some £126bn. Or to put it another way the Tories are borrowing over 400% MORE than Labour thought they would borrow in 2012.

So it is the amount being borrowed that is important NOT how much it’s reduced as a %. And in simple terms whether the Tories borrow £136bn, £126bn or even £60bn that amount, in and of itself, is unsustainably and historically  huge and is crippling the UK economy. Remember the UK needs to run SURPLUSES to pay off the enormous historic national debt.

There were also a couple of other interesting things to note from this week’s public finance report out of the government funded ONS – like this little doozy about the Bank of England pocketing some £700m in corporation tax exemptions:

So the Bank of England prints money out of thin air, uses that money to buy up UK debt (essentially loaning money to the UK government by monetising the debt), and then swaps those UK government securities with banks and building societies for their poor performing mortgage backed debt. The process generates a profit to the BoE which it remits to the UK government and the promptly asks for £700m because it’s exempt from corporation tax.

And bingo-bango-net-net the BoE just made a cool £700m in profit for itself – all courtesy of a magical money-printing machine and nothing else. Just why can’t we all have ago on that magical machine again?

If that explanation about how modern money mechanics works leaves you slightly bewildered it’s because it should. Simply put our ‘modern’ financial world is based at its heart on some very strange and abstract and VERY fallible presumptions – what could possibly go wrong.

Then there is this about the sale of Northern Rock that highlights just why that chart at the top about ‘real’ UK debt to GDP is so terrifying:


So up until the sale of Northern Rock last year all the money that the UK leant and guaranteed to the comparably tiny bank didn’t show up in the figures for the UK national debt (the one that now stands at 66%). However, now that the sale has been completed those losses will now appear on the UK net debt figures (the ones that are ex financial interventions).

In their own words you can see how this worked:

A capital transfer of £1.4 billion made from government to Northern Rock in 2009 was treated prior to the sale of Northern Rock as a temporary effect of the financial interventions and so excluded from PSND ex

[emphasis ours]

Or in other words, the UK government borrowed £1.4bn and then promptly turned around gave this to Northern Rock – but crucially at the time that £1.4bn was NEVER included on the national debt. This is why that 66% debt to GDP is completely bogus – the one that everyone should be looking at is the 150% debt to GDP which crucially INCLUDES those financial interventions – AKA bailouts!

Also don’t forget that Northern Rock still owes a whopping £21bn – again all kept off the official numbers emanating from the ONS. And in the grand scheme of things Northern Rock is tiny – Lloyds TSB and RBS anyone?

The ONS then provides some very interesting information on the Nationalisation (yes the Tories are Nationalisers NOT privatisers) of the Royal Mail pension fund:

In other words the Government has nationalised the pension fund of the Royal Mail – in doing so it will receive their assets of about £28bn, this £28bn will immdeiatly REDUCE the net debt and net borrowing of the UK by the same amount.

However, and it is a rather huge ‘however’, at the same time the UK government will then owe £38bn in pension payments going forward, which means that net-net the UK taxpayer is on the hook for an additional £10bn but this WILL NOT be added to the national debt. This is because, as you can see above, UK government pensions are not funded – which means that they do not set aside money whilst people are paying into their pension schemes, but rather they rely on taxing more and more working people to pay for the people who are retiring. Now just what was that classic definition of a ponzi scheme again?

So next month the national debt and figures will go down quite dramatically – don’t be fooled by this. In actual fact the UK debt just jumped by at least £10bn.

Finally the ONS then admits the government’s way of keeping it’s accounts are “not fully in line with international National Accounts guidance” – we kid you not:


Simply put, if a private business used accounting methodology the same as the UK government they would go to jail – and we’re expected to trust this lot to get down the UK debt and managed and enormous budget?

So there you go – if you read or listen to the political hacks in the media the meme that is always and forever presented to you is that the UK is undergoing some sort of ‘austerity’ in order to cut the debt. The reality, from just using the government’s own statistics, is the complete opposite. It truly is an amazing period of time when complete 180 degree fiction can be presented as truth. On top of that the numbers that they push don’t account for more than half of the ‘real’ debt and pensions are unfunded but won’t turn up in the debt figures. This is then all topped of by the government admitting that they don’t use proper accounting methods – more and more people really need to be yelling at the emperor that he has no clothes.

Link to this article: : http://www.goldmadesimplenews.com/gold/uk-%e2%80%98real%e2%80%99-debt-to-gdp-reaches-150-whilst-the-tories-add-32-onto-the-national-debt-6744/

Posted by on Apr 26 2012. Filed under Analysis, Gold News, Markets. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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