In the News
The Hidden National Debt
By Chris Ball. 17th September 2009.
In July 2009 the public sector net debt (PSND) increased by £8bn to £801bn, which many people are aware is the highest level on record. But what most people are not aware of is that there is a much bigger National Debt that is completely hidden from the public gaze.
We have a second national debt - one that is kept out of government figures and hidden from view. This is the public sector pension debt, which has grown as successive governments have continued to promise public sector workers defined benefit pensions, often worth two thirds of final salary, index-linked for life. It is now equivalent to 78% of GDP (£1.1trillion) with the cost of servicing the debt each year to pay for these unfunded schemes now at £45.2 billion.
There were 5.8 million working age benefit claimants at February 2009. This is an increase of 628,000 (13%) on the year.
The published public sector net debt (PSND) is now equivalent to 56.8% of gross domestic product and equivalent to £32,032 per household. Add to that the £1.1trillion public sector pension debt and the true National Debt is running at a total of £1.9trillion equivalent to £76,040 per household or 137% of gross domestic product. The interest alone on this debt represents £2,749 per household per annum.
Add to all this that the government themselves are predicting that these debts are going to continue to rise for many years to come, with no viable propositions to alleviate the problem, it is little wonder that the UK government has been having difficulty selling Government Bonds.
Many do not believe that this level of debt is sustainable and that the result will be a meltdown in the economy of the UK. It could mean that at some stage in the future the government will be forced to go back on their pension promises, or raid the pension funds of others. I will certainly mean an end to the cradle to grave protection many have grown to expect.
In these turbulent times it has never been more important to ensure you are not in debt. A rise in interest rates is inevitable in the medium term, combined with a massive squeeze on public sector spending, which combined will see more and more business failures, people facing redundancy and increases in the cost of living.
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