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National Debt, the Credit Crunch and Public Pensions

The British electorate (2008) have been told that Britain has little in the way of National Debt and is well placed to ride out the coming recession. The currency markets have taken a different view. Why?

The Organisation for Economic Cooperation and Development (OECD 2006) gives figures for National Debt that show that the UK had a Gross National Debt that was around 50% of GDP in 2008 before the Credit Crunch. However, the UK government differs from some of the other OECD countries because it does not declare the most important source of debt: public pensions. Government liability to service public pensions now stands at over £1000,000,000,000, yes £1 trillion (Institute of Economic Affairs 2006)

If the pension liabilities of the UK government and other undeclared debts such as the Public Finance Initiative are added to their declared liabilities then UK debt is around 120% of GDP. This is second only to Japan amongst the large global economies. However, Japan has a huge manufacturing industry and is a diversified economy. The problem here is that Brown staked his reputation on being "prudent" by keeping debt under 40% of GDP so he has massaged all of the public debt figures to make it appear as if he has succeeded. Only journalists would fall for such an obvious wheeze...

The public pension debt is a result of a failure by the government to include the true costs of pensions as deductions from the salaries of public sector workers. The average public sector worker has been paid a hidden bonus of around £10,000 per annum for a pension. This should make private sector workers vomit because they provide all the real money in the economy and are unable to find secure pension schemes anywhere.

The NHS pension liability is now over £218 billion (£8,700 per head of the UK population, Daily Mail 24/10/07). Police pensions are the major reason for the shortfall in police funding and are probably a major factor in the poor policing in Britain (See Hansard 24/02/2003).

The public sector pension liability has risen massively under the Labour Government (Daily Telegraph 11/8/04). It is a sign of incredible economic incompetence and shows how governments are happy to wreck the entire economy rather than deal with issues that might have awkward political repercussions.

So, where do we go from here? Well, although the electorate in the UK is totally in the dark about the pension crisis the speculators on the international currency exchanges are not so ill-informed. They look at a national debt of 120% of GDP and treat the pound as a pariah currency. Worse still, the UK is uniquely badly placed to deal with the current financial crisis.


Institute of Economic Affairs 2006. http://www.iea.org.uk/record.jsp?type=release&ID=114

Central Government Debt. By Organisation for Economic Co-operation and Development, OECD. (2006). http://books.google.co.uk/books?id=gE0PU4TlfzEC

Daily Mail 24/10/07. http://www.dailymail.co.uk/news/article-489381/NHS-pension-balloons-30-cent-triggering-fresh-Government-debt-fears.html

Hansard 24/02/03. Police Pensions. http://www.parliament.the-stationery-office.co.uk/pa/cm200203/cmhansrd/vo030224/debtext/30224-01.htm

Daily Telegraph 11/8/04 http://www.telegraph.co.uk/finance/2892362/Pension-bill-for-public-sector-tops-UKs-debt.html

Article written 12/12/2008
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