The current spending cuts discussion is taking place against the context of a national debt estimated by official government figures as £772bn (54% of GDP). In fact the national debt more accurately estimated by including pension liabilities, and a reasonable estimate of the likely liabilities to be incurred by the government in respect of the banking sector is actually £4.8 trillion (333% of GDP), over six times the size of the declared national debt.
On this measure, the UK’s debt has increased by £674bn (16%) since 2008, from £4.1 trillion to £4.8 trillion.
In 2008 the national debt per person was around £67,000 - now it is about £78,000.
Liabilities from financial interventions make up £73bn of the debt, while public sector pension schemes comprise £1,179bn.
This level of debt arises, in large part, because of the government making unfunded pension promises which will have to be honoured by future generations of taxpayers.
The Office for Budget Responsibility (OBR) should compile figures showing the government’s explicit and implicit debt arising from pension liabilities every year.
All future public sector pension liabilities should be financed up front and funded with index-linked gilts or other assets.
The state pension age should rapidly be increased to 70.
The linking of state pensions to earnings and the minimum 2.5% increase should be abandoned.
Nick Silver, Institute of Economic Affairs Fellow and author of the report said:
“Much of the discussion about public spending cuts in the UK is not grounded in reality. The scale of the national debt is substantially worse than acknowledged. Presenting a true picture of the nation’s finances should be a key role of the OBR.”
“This figure for the national debt of £4.8 trillion may seem incomprehensible. However, it does represent a good estimate of the burden this generation is leaving to the next. It is time that the government properly accounted for pension debt, as any company does. It is important for the government to stop this increase in explicit debt. But the government is also continually incurring further unfunded pension liabilities, which is making the situation worse. We need a coherent strategy for tackling these liabilities, for example by reducing public sector pensions and raising the retirement age.”
To arrange an interview with Nick Silver, IEA Fellow or Philip Booth, IEA Editorial and Programme Director, please contact Ruth Porter, Communications Manager, 077 5171 7781, 020 7799 8900, firstname.lastname@example.org.