The Government has shrouded its public finances in an opaque blanket of manipulations and masquerades, hoping the British public would be as short-sighted as their own economic policies have been.
Yet, in ‘The Price of Irresponsibility’, a report recently published with the Centre for Policy Studies, the Government’s claims of a prudent financial and fiscal policy are proven not only wrong, but also dangerous to the economic future of this country.
The most recently published data released on Monday claims the UK’s public debt is £645 billion or 43.4% of GDP, but this is a significant underestimate. The true scale of government debt actually stands at an astronomical £1,866 billion, equivalent to 125.5% of GDP, which is nearly three times larger than the Government’s published figure. On top of the squeeze felt by the current credit crunch, this leaves each British household hobbled by a ball and chain of public debt to the sum of £76,475.
Despite this true figure, the Government still claims to have reduced public debt. Yet, broader liabilities have actually increased and Britain is on course for the highest deficit ever, even before we enter recession. Figures recently released on the scale of the Government’s public spending bonanza point to Government borrowing leaping to a record £8.1 billion in September. Yet this is only the tip of the iceberg.
‘The Price of Irresponsibility’ brings onto the balance sheet the full cost of projects financed through the PFI, the extent of unfunded public sector pension liabilities, the debt incurred by Network Rail and the recent nationalisation of Bradford and Bingley. It also includes the £87 billion Northern Rock debt that the Government claims should not be included in the official debt figure of £645 billion.
Yet, this public debt figure of £1,866 billion may still worsen. While the exact impact on the public finances of the Government’s recent bail-out of the banking sector is as yet unknown, it could imply an extra £500 billion to be added to the balance sheet. This would increase public debt to a massive £2,366 billion, which is 159.1% of GDP, or over £96,967 per British household.
Political expediency appears to have won out over the need for economic prudency. Hiding substantial liabilities off the Government balance sheet has enabled it to circumvent Gordon Brown’s much lauded ‘Golden Rule’ and ‘Sustainable Investment Rule’. Yet, the true reality of the Government’s debt standing at £1,866 billion tears holes in the ‘golden rule’ and obliterates the ‘sustainable investment rule’. These fiscal rules have been manipulated and discredited so much that the only option now is to scrap them. The Government should recognise these failings and look towards the future with an entirely new and forward-thinking fiscal framework.
However, the Government still maintains it has been the saviour of public debt. A pervasive lack of transparency has enabled this charade to continue for too long. Without any hint of apparent irony, the Chancellor even slams the banking sector for actions identical to his own:
“I agree with…the need for far greater transparency. There also needs to be stricter rules in relation to off-balance sheet activity, which has enabled some banks to get round their other regulatory responsibilities. That is clearly not a satisfactory position.”
To demand transparency and accountability in the private sector is a fine aim. But, to refuse to apply this in the public sector treads a dangerous line of hypocrisy and double standards. For the sake of the millions of British taxpayers saddled with this public debt, an Office for Budget Responsibility, recently proposed by the Shadow Chancellor George Osborne, must urgently be established to conduct an independent audit of the government books. This is the only way we can be sure that this Government, and any future government, remains accountable to its promises and commitments.
When I questioned Gordon Brown on Monday on the matter of transparency in the public sector accounts, of whether this was another case of “Do as I say, not do as I do”, he again sidestepped with:
“The answer is that we follow the international standards and the Office for National Statistics on that, and, in fact, we follow the practice of the Government whom he supported”
Ignoring the true figures of national debt may help Gordon Brown as he pretends to run with the pack of other countries who have been reducing their public debt for years. Yet, as the IFS point out, ‘of 21 comparable industrial countries, 16 have reduced their debts and 19 have reduced their structural budget deficits by more than the UK while Labour has been in office’.
Using off-balance sheet instruments as a stealth tool to keep public debt off the balance sheet is being a little economical with the truth to the British public. Already grappling with the effects of the credit crunch, millions of British households and businesses are depending on the Government to provide reliable and sustainable solutions to their problems. Yet, with one of the largest budget deficits in the world, the Government is ill-prepared to look after its own citizens. Gordon Brown ploughs on regardless, pledging to continue borrowing in a desperate attempt to spend his way out of the current economic crisis. This is not the answer. An economy built on debt is not built to last. We need to bring stability to the public finances in the long term, rather than further ratchet up spending in the short term.
Gordon Brown has presided over his own Age of Irresponsibility, and now the British public is being forced to pay the price of this. The extraordinary level of public debt is already pushing the costs of current spending onto future generations of taxpayers, wholly at odds with the Government’s claim of intergenerational fairness. Ultimately, it is the taxpayer who will suffer in the end through this Government’s pervasive debt dependency.
The true figures of the public finances are a damning indictment of the Government’s loose fiscal policies and their claims of ending boom and bust. There may yet be even more financial skeletons waiting to be found in Number 11’s closet.
The decade-long spending binge that has brought our public debt up to £1,866 billion, by the most conservative estimates, is unreasonable, unfair and unsustainable. The Government must first recognise the true scale of public debt and then bring some much-needed transparency onto the books. We need both fiscal responsibility in the Government and financial responsibility in the economy if we are to stop the public finances from spiralling even further into the abyss.
Brooks Newmark MP was elected MP for Braintree in 2005. He is currently the Opposition Treasury Whip. Before entering Parliament, he was a Senior Partner at Apollo Management LP, a leading international Private Equity firm.