The bottomless pit of public sector debt

The public sector debt figures released today were expected to be dire, and they have lived down to expectations. January is usually a good time for government receipts because many companies pay their tax bills; last year total current receipts for January were £60.5bn, but this year’s figure is down to £53.8bn.Total receipts for the year to date (April to January) at £411.7bn are £10.1bn lower than for the same period last year, and the table above, taken from the ONS release, shows the fall in receipts from various different tax sources – corporation tax, income tax, national insurance, VAT, stamp duty and capital gains tax revenues have all fallen.

If the government were in a position to reduce expenditure accordingly this would not be so bad; however, net current expenditure for the year to date is standing at £447.8bn, which is £23.3bn higher than in 2007-8, with higher net social benefit payments for January alone accounting for almost £2bn of that increase. As a result, and as we know, government borrowing is rising steeply. The Treasury forecast for government borrowing for this tax year was £77bn but Robert Chote, director of the Institute for Fiscal Studies, said that it could be “nearer £87bn.”, and at the end of January public sector net debt was £703.4 billion, equivalent to 47.8 per cent of gross domestic product. A look at the table of “Fiscal indicators as percentage of GDP: latest ten years” on page 2 of the ONS Public Sector Finances press release clearly shows debt being repaid during the early years of prudence in Gorden Brown’s time as Chancellor, and the reversal since 2002/3 as spending outstripped revenues and the deficit built up again.

On the day on which the ONS also announced the classification of Royal Bank of Scotland and Lloyds Banking Group (formerly HBOS and Lloyds TSB) as public corporations from 13 October 2008, it is worth noting that the net debt figure without financial sector interventions would be over £100bn lower; the most recent figures are for December 2008, when net debt was £594.1 billion (40.4 per cent of GDP) – the graph here tracks the figure both including and excluding those intervention payments. But the ONS estimates that incorporating the figures for RBS and the Lloyds group could add staggering figures of between £1 and £1.5 trillion to public sector debt - taking the total to as much as 150% of GDP. It is still possible, of course, that one day we will get some or all of the cost of intervention back, when the situation is recovered enough for the government to feel it can re-privatise the banks, selling shares at a price which either reduces the loss or even makes some return for the taxpayer – that won’t happen in the very near future, though, and is going to need funding in the meantime. Which could be where the new measure of Quantitative Easing comes in – see Jon Mace’s blog ‘Printing Money Graphic’ this morning which helps to clarify that prospect.