Coffee House

After party political porky pies, Number 10 admits debt is rising

24 January 2013

12:52 PM

24 January 2013

12:52 PM

Finally: Number 10 admits that far from ‘dealing with debt’, the government is seeing it rise. This morning the Prime Minister’s spokesman was grilled on the party political broadcast that horrified Fraser last night in which the Prime Minister said ‘we are making progress. We’re paying down Britain’s debts.’

Fraser has explained the reality – that Cameron is in fact increasing Britain’s debt by 60 per cent – in this post with two unnerving graphs, and the Prime Minister’s spokesman conceded that ‘the debt as a percentage of GDP has risen’. Asked whether the Prime Minister understood the difference between the debt and the deficit, he said: ‘Yes, he does.’ By way of explanation for the broadcast, he added:

‘The point the Prime Minister was making is that it is the Prime Minister’s government that is taking the tough decisions to deal with the economic crisis the government inherited and we are making progress with that.

‘We have a long-term fiscal consolidation plan set out across this Parliament which will see debt as a percentage of GDP falling by 2016/17, that’s how we are getting debts under control.’


Note the way the spokesman refers to the debt target, which had been to have debt as a percentage of GDP falling by 2015/16. George Osborne admitted in the Autumn Statement that he would miss this by a year (and even that might prove too optimistic), but the way the PM’s spokesman has worded his response suggests that getting debt falling by 2016/17 is a sign that the government is indeed dealing with its debt, rather than missing its own targets.

The fact that the debt ratio is rising is no surprise: projections are published with every Budget by the OBR. Here are the latest forecasts:

Naturally Labour – regardless of its own plans for borrowing – is making as much of this as it can, complaining today to the UK Statistics Authority about the claim in the broadcast.

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Show comments
  • Curnonsky

    A giant wobbly house of cards, propped up by QE. Absolutely nobody understands why it doesn’t come tumbling down as more and more cards are added – surely we can keep building it forever? Perhaps we have discovered some magic that defeats the laws of physics? And then one day a tiny breath of air sets the whole thing a-trembling…

  • HooksLaw

    Of course debt is rising – the deficit inherited was about £160 billion. if you halved that in a single year debt would go up by £80 billion.

    Cameron and the government are not ‘in fact increasing Britain’s debt’ … they are dealing with a disastrous financial situation, of enormous proportions, yet again inherited from a Labour govt.

    One by-product of cutting the deficit quicker might well be to so impoverish the nation that its intellectual elite might no longer afford the Spectators subscription. Since it would have been by the Spectators urgings that they were so impoverished, the elite might consider it an austerity sacrifice worth making.

    • petermorris

      Borrowing under this government is going up each year – it is not being paid off. It is set to rise to around £1.3 trillion in several years time. Cameron is economic with the truth. Just like when he says spending on the NHS is increasing under this government. In real terms, according to the Government statitician, spending on the NHS is falling over the past 2 years.

      • LB

        If you spend 100 bn on the NHS, and 100 bn and a penny, its still and increase.

        You can argue it the other way too, because the left claims cuts, when they mean that spending hasn’t increased above inflation. That’s equally as much of a porkie.

        Conclusion – Politiicans lie.

        • petermorris

          Especially Tory ones. Even when the Government Statitician corrects them, they ignore him

  • LB

    Frazer’s lying.

    There are more debts that borrowing.

    The state owes people pensions. They are debts too.

    PFI is a debt, why omit that?

    • itdoesntaddup

      If you said that government (this one and the last one) is behaving no better than Robert Maxwell it might be closer to the truth. There will be no funds for those pensions, so they are not a liability. The funding has instead been squandered already.

      • LB

        The are a liability, by all the accounting standards.

        Where you are correct, is that there are no assets to offset them.

        What that means, and perhaps it what you are trying to say, is that even though they owe the money they won’t pay it. So it they won’t pay it, its not a liability?

        I think that’s your argument.

        If that’s the case, it’s Bernie Maddoff or Maxwell. The end result, its that pensioners will be destitute.

        The offence is quite clear. Section 2, 2006 Fraud Act if you want to look it up.

        • itdoesntaddup

          The argument is quite clear. The level of pension is set by the government during each budget. It is not a fixed liability, but one that governments are free to change. When push comes to shove, it will be changed, most probably by stealth via inflation – but the real burden will not be your actuarial assessment that in any case uses the lowest discount rates in the history of the Bank of England.

          • the viceroy’s gin

            Oh, so votes are being bought through bloated promises, but these promises can and should be got rid of later, through means above board or below? So best to hide that they’re being made?

            Well, alright then. Nothing wrong with a little vote buying, deception and stealth, is there?

            And you’re right, the current low discount rates help you and the Cameroons hide the true level of public debt.

            Why would anybody ever think it useful to report the true level of public debt? Better to hide it, right? What the plebs don’t know can’t hurt them, right?

            • LB

              Most of what you say is correct, but the promise isn’t bloated. People are only getting 20p in the pound back on their money for the state pension.

              Why’s that bloated?

              Otherwise, I’m in perfect agreement. People are going to be sorely disappoint, and it lots of cases destitute when the state reneges.

              • the viceroy’s gin

                I agree pension is a poor investment, but that’s a separate discussion. I’d certainly be willing to have that discussion, but as the raw numbers aren’t even being discussed, as you seem to agree, I doubt we’ll be getting through to the underlying data and investment value analysis, any time soon.

                • LB

                  Iv’e done it.

                  Total percentage of pay going in NI for a 26K a year worker is over 18%.

                  40 years ago, that 26K was 700 a year based on average wages.

                  Put 18% of 700 into the FTSE. At the end of the year, you make or lose, plus you get some dividends.

                  Next year, wages go up or down with average wages. Add in 18% of the wage to the fund. Make or lose on the fund, get some dividends.

                  Repeat for 40 years.

                  End total, 560,000 pounds.

                  If we buy an indexed linked annuity for the state pension from a profit making private company, it costs around 130,000.

                  So the difference is the cost of the state pension, or the loss of value, or the charges, …. or an effective tax, or redistribution of pensions. Insurance premiums. Call it whatever you want.

                  End result, a 26K a year worker, has lost out on 430,000 pounds.

                  If you want the detailed numbers I’ll get them for you.

                  Even the 130K state pension cost is under threat because they can’t pay it.

                • itdoesntaddup

                  Since the state makes investments of negative worth (see HS2) I’m not sure I’d trust them to invest it.

                • LB

                  Quite. They just don’t get investment.

                  However, I strongly believe that investment is the solution.

                  560K versus 130K (and going to be less).

                  So lets divert NI into a fund in peoples own name. End result lots of investment money for growth.

                  We cap the charges. Economies of scale kick in.

                  50% of payments go to a fund in the spouses name, and vice versa. Pension funds of this type ignored on divorce.

                  If you die early, fund goes to your heir’s funds. This benefits the poor who tend to die young.

                  On retirement, you go into drawdown. If you die before the fund runs out, remainder goes to your heirs.

                  If, and only if, your fund runs out before you die, do the rest of us help. Just in time help. Bailout limited to the state pension.

                  Existing accruals stand. So if you have 29/30 years of state pension, and have 3 years left to work, you get three years of savings. You get 29/30 * 5000 of state pension. If you run out topping up the pension from your fund, we all help.

                  This last part is crucial. Since history says you would have got 19K a year for 26K a year worker, you are not going to be ever using the guarantee. The chances are small, miniscule.

                  Then we have the secondary effects of that sort of investment. It’s growth and serious growth.

                • Noa

                  It would be good to see the details to your reasoning on a complex topic.
                  Have you thought about publishing it as a permanent, referable record on a blog? e.g. Peter from Maidstone’s Coffe House Wall?


                • petermorris

                  You can already get a statement of the NI that you have paid all your working life. Look on the HMRC website.

                • HooksLaw

                  National Insurance pays for the health service (supposedly) and other benefits not just the stare pension..

                • LB


                  Government website. From the horses mouth.

                  What does NI Pay for?

                  Basic State Pension
                  Additional State Pension
                  Contribution based Jobseeker’s Allowance
                  Contribution based Employment and Support Allowance
                  Maternity Allowance
                  Bereavement Benefits.

                  Hmmm, I don’t see a mention about the NHS.

                  Sorry, its a wide spread myth. NI isn’t for the NHS.

                • Tom Tom

                  Contribution based Jobseeker’s Allowance = £5 billion

                • LB

                  Contribution-based JSA

                  Age Weekly amount

                  16 to 24 Up to £56.25

                  25 or over Up to £71


                  You can only claim contribution-based JSA for 6 months


                  So 5,000,000,000 pounds a year, for 6 months only.

                  So I make that 2.7 million claimants claiming for the full period. 5 bn / 71 / 26 weeks.

                  That’s more than the number of unemployed.

                  Perhaps the money is going on other things than your NI buys.

                  Most people are unemployed for a short period, thankfully. However, that money comes out of other people’s pensions.

                  Given a 26K worker is out by 430,000 after 40 years, that’s an awful lot of 71 quid a week payments. How much of that 430K would you say has gone paying JSA for others?

                  Why don’t you work out how much goes on Bereavement benefit next?

                  Then we can we can seen how much of their 560,000 fund, has gone on all the different things.

                  Less than 130K has gone on their pension.

                • petermorris

                  Less than 2.00% is creamed off the top of the NI take for the NHS – this is because NI was used to finance extra money for the NHS a few years ago. Over 98% of the NHS funding comes from taxation directly.


                • Tom Tom

                  National Insurance revenue = £96.5 billion State Pension Cost = £80 billion

                • 2trueblue

                  Not much of our money left for anything else then?

                • petermorris

                  The remaining amount is used to pay certain benefits, like bereavement allowance, etc. See elsewhere on this post.

                • 2trueblue

                  No, it used to be ring fenced for these purposes, but not any longer. Now it is just a tax and goes into the pot and mainly is paid out in benefits.

                • petermorris

                  It is still ring fenced. Just because it is collected through the PAYE system like tax it does not mean it is treated the same way. You can see the latest available accounts for the NI Fund here:


                  The accounts are audited each year by the NAO, are forecast each year by the GAD and the surplus cash balance of over £25 billion is invested by the DMO.

                  HMRC keep a record of your individual NI contributions (unlike for taxation) and you can find out what your NI record is by following this link:


                • 2trueblue

                  The money that is taken is not put aside or ring fenced, any more than road tax is. They certainly can give you an details which are meaningless….. they make the rules. in some years hence someone coming in from abroad who has contributed nothing, will get a better flat rate pension than someone who has actually contributed.

                • petermorris

                  @2trueblue – you have no evidence whatsoever to support your assertion. I have provided evidence to show the NI Fund is ring fenced, the annual accounts are kept by HMRC, the annual accounts are audited by the NAO, the forecast is made by the GAD each year before the annual upratings go through and the DMO manage the ring fenced NI Investment Fund. If you want to argue from a position of complete ignorance, then so be it.

                • 2trueblue

                  It stopped in 1978.

                • petermorris

                  What? Your brain?

                • 2trueblue

                  So tell me where do you get your charm and you facts from?

                • petermorris
                • petermorris

                  Only a very small percentage of NI contributions go into the NHS – less than 2.00%. The NI Fund pays out state pensions plus some income related benefits. Over 98% of the NHS is financed directly from taxation.

            • itdoesntaddup

              The current low discount rate inflates future pension liabilities. Annuities are much more expensive per unit of income provided.

              • the viceroy’s gin

                …and best if we keep that all quiet and out of the discussion, then?

              • LB

                The rate used to discount a liability isn’t dependent on annuities (gilts).

                You need to have a model for

                1. Wage inflation

                2. CPI

                3. 2.5% (the easy one)

                Then you have the maximum of then, and use that for calculating future cashflows along with the known numbers for entitlements.

                You then discount using CPI, because that present values the result.

                Annuity rates don’t come into it.

          • LB

            As it stands, its a legal debt.

            I do accept the state can default on its debts, just by passing a law that says we aren’t paying it.

            It can’t use inflation, since there is a triple lock. The max of wage inflation, CPI or 2.5%. As fast as you inflate, the rate does up.

            Discount rates are irrelevant. It’s a liability. You can’t use asset rates to discount a liability that’s linked to inflation, to make the number smaller. You need to discount based on the triple lock above. Now the ONS for some reason use 0.3%. Perhaps they are privy to something about the BoE that the BoE isn’t letting on. e.g. 2.5% – inflation target = 0.5%. 0.5% is a reasonable rate to use for the escalation of payments, ignoring new accruals.

            Discount rates are irrelevant. No fund, why assume you are earning a return on nothing?

            So you’ve actually let the cat out of the bag. The government is free to change the payouts. Now, ask the question. Will the government have to change the payouts? Make them lower?

            To answer that question, you have to get a number for the size of the current liabilities, and compare that against taxation and spending. When you do it is blatently obvious that the state can’t afford to pay out on its debts. It’s gong to default, because its free to change the law. Default, cutting spending, call it what you want, but people won’t get what they have been promised.

            So why are you arguing against what is currently owed, under current rules being reported? If they cut the pensions, then the figure goes down, when the cuts are made.

            In lots cases they have voluntarily bought, by extra NI payments. It’s the latter that will cause legal problems. Voluntary payments, debts off the books, its fraud by misrepresentation. Section 2, 2006 Fraud act.

      • LB

        Here what you are saying, put in a different way.

        Buy a house, get a mortgage.

        Sell the house, spend the cash.

        So now you don’t owe anything on the house.

        There is no house (funds), so you don’t owe the bank for the mortgage (the pension) After all you’ve sqaundered the cash

        • itdoesntaddup

          Not at all. I’m saying there is no contract for state pensions: it is varied at will by government. We have seen changes in retirement ages, indexation conditions (CPI vs RPI is a big cheat that will soon erode real values and the other elements offer limited protection at best), and the ending of SERPS from this government alone.

          I’m also saying that FRS 17 and GAAP are CRAAP. They’ve proved to be useless accounting standards, dependent on the fictions of mark-to-market and mark-to model for long lived assets subject to bubbles and crashes.

          • petermorris

            The state pension is currently subject to the triple lock, so the higher of RPI, Earnings or 2.5%, so I am not sure about your point about eroding values.

            • LB

              So given the ONS put the debt at 5,010 bn 2 years ago, that 5,300 bn now, at least.

              The surplus of receipts over payouts just means that the debt has been pushed down the line. Even the 144 a week pension gives 9bn a year to the treasury.

              40% on top of the 3,700 bn state pension debt? Quite a lot to add and hide down the road.

              • petermorris

                You seem to be quoting numbers out of thin air.

                When you work out what you are on about, let me know. And some sources for your wild assertions would be good.

                • LB

                  Since you’ve used the government statistician to diss the crap from number 10, I presume you would trust them with the numbers.


                  Bottom of page 4 has 5,010 bn from 2 years ago.

                  Now you’ve already mentioned the triple lock. Over 2 years, how much as 2.5% compounded added to the 5,010 bn debt?

                  Given the ‘surplus’ that’s been spent, the existence of the surplus means more people contributing than taking out. That means the debt is also growing. 2.5% compounded is the minimum increase.

                  So pretty much cast iron numbers. The only criticism I would make of the ONS is that given the triple lock with a minimum of 2.5%, and the inflation target of 2%, the correct assumption for the growth in payouts is at least 0.5%. They assume 0.3%, which means they have under estimated the debt.

                  That underestimate doesn’t matter, because the debt is still to large to pay if you assume 0.3%.

                  Do you have anything that backs up your claim that the state owns people and so can book a percentage of their earnings as an asset?

                  If you book the income, why aren’t you booking the expenses too for those people?

                  e.g 700 bn spend, divided by 61 million gives a per head cost of 11,475 per person per year.

                  The income they generate is only 9,016 pounds a head.

                  If we go down your route, that means the state is making a loss.

                  How are you going to pay the pensions when your ‘staff’ are losing money hand over fist?

                  Just shows the problems in the terms you raised.

          • LB

            They aren’t used in government accounts. If they were used, you would see that the pensions system is screwed. Forget fiction, in this case they have just left them off. It’s the Bernie Maddoff school of accounting.

            Where’s the bubble in the state pension? They have no assets. No bubble comes into play.

            • petermorris

              The state pension – the NI Fund in other words, has a cash balance of over £25 billion as at the end of December 2012. I would call that an asset. Bernie Madoff would have loved to have that much in readies.


              • LB

                OK. Take out a sheet of paper.


                I Peter Morris, owe Peter Morris, 25 billion pounds.

                Then sign it.

                Yep, you’ve got a valuable asset.

                So if the government holds its own debt, does that make an asset?

                I’ve no problem booking it as an asset, but at the same time, you’ve got to book a liability else where. So what you make on this asset, you lose elsewhere.

                It’s far simpler to say borrowing goes in the borrowing set up, and ignore holdings of your own debts as assets. That way you don’t double count.

                Set lets assume that its an asset. 25 bn against liabilities over 5,300 bn?

                OK, how are you going to pay the 5,275 bn?

                • petermorris

                  I can’t sign a piece of paper because I don’t have £25 billion in cash. The National Insurance Fund does have £25 billion in cash.

                • LB

                  Just get out the paper. Two pieces. One’s an asset, ones a liability. Net result zero.

                  So one part of the government owes another part of the government money. Yippee, its an asset. That’s exactly the scenario if you sign the two pieces of paper. You’ve got 25 bn in cash in the same as the NI fund.

                  So how does 25 bn of assets, pay 130 bn of pensions, each and every year?

                  As of yesterday, the fund runs out on April Fools day.

                  As an asset, its never going to cover what people have paid for.

                  ie. Even if we take it as an asset, its less than 5% of what they owe, and it just inflates the debt figure for borrowing.

              • LB

                Here’s another way of looking at it.

                25 bn in assets.



                138.1 bn a year on payouts.

                It doesn’t add up.

                At the current rate of spending, the asset is gone in 2 months 5 days time. Coincidently, April Fools day. 🙂

              • LB

                Again, 25 bn in assets when you owe 5,300 bn, is Bernie Maddoff territory. Ignoring the fact its the government lending to itself.

    • telemachus

      As I keep saying
      Borrow to invest
      Invest to grow
      Reap the tax returns from the boom
      Then think of payback
      Simple economics
      Osborne cannot see it
      Bring on the charismatic one

      • George_Arseborne

        I am longing for 2015 when these liars and economic illiterates Osborne and Cameron will get a kick and the real Leader and Economists the Two Eds will take care of the nation and restore Great into Britinto Britain

        • HooksLaw

          Who said irony was dead?

          • George_Arseborne


        • 2trueblue

          Keep taking the pills, they just might help.

      • LB

        But that won’t work.

        1. Borrow at 4%
        2. Growth of 2%


        Or HS2. If that’s an investment, then the ticket prices cover the cost of the loans, including paying them back, as well as the running costs, and the pensions of workers, plus makes a profit. In which case, why are they asking for a subsidy?

        Or is it we get people back to work, and we don’t pay benefits, plus we get taxes. Lets see how that works.

        5K a year income support, 5K a year for Housing benefits, council tax subsidy. In work, perhaps they get a bit more than min wage, so lets say 3K a year in tax. 13K a year is a reasonable figure. Lets inflate it to 15K.

        Get one million back to work, and that’s 15 bn a year, assuming you spend no money. No back to work schemes, some pixie dust means they find a job.

        Deficit, 150 bn (ignoring the off the book debts). Where’s the other 135 bn going to come from?

        All simple economics, with some numbers. That also ignores the above inflation increases in spending. It ignores the above inflation increases in the off the book debts (the triple lock).

        So why didn’t you put some numbers to your plan?

        • HooksLaw

          Railways all over the world are subsidised.

          • LB

            Tellemachus was claiming that investment produces growth to pay for pensions.

            However, as I pointed out and you’ve just agreed, railways in the UK are subsidised. They aren’t investments that generate enough money to pay for borrowings to build them, running costs, and workers pensions. Hence the subsidy.

            Therefore investments in railways just increase the debts.

      • Hexhamgeezer

        The problem is that you mean ‘invest’ in the Broon sense. Borrow to spend now on short term sugar rush stimulus to the economy. Repeat to fade….

      • Tom Tom

        Yes Gordon must have gained huge SURPLUSES from the Boom he created….

    • HooksLaw

      PFI is budgeted for and paid out of current spending. PFI is for 30 years typically and includes not just capital payments which are a relatively small part, but current payments like servicing, maintenance and replacement costs. All these servicing costs are not capital debt payments thet afre costs which would come due no matter how the project is procured.

      At the end of 30 years the project or building becomes the property of the govt/heath service/ local authority.

      Future pension payments are not debt. Stop pretending they are.

      • Tom Tom

        At the end of 30 years the project or building becomes the property of
        the govt/heath service/ local authority…………………ONLY IF THEY BUY IT…….it is not a Capital Lease but an Operating Lease

      • LB

        Of course its a debt.

        If the pension was paid for in the past, by contributions its a debt. This comes to 5,300 bn pounds, present value. Rising by 2.5% at a minimum.

        If you are saying what about the payouts for pensions where people contribute in the future. Potential pension debts, then I agree. Not a debt. Hence not included in the 5,300 bn.

        If you are claiming its not a debt because the payments come out of future taxes, then why is borrowing a debt? All those payments come out of future taxes.

        Ditto, GAAP and FRS17, state that they are debts. Government qualifies its accounts First, its GAAP/FRS17, then its we won’t use it. Under what accounting standards do past pensions accruals not go on the accounts?

    • petermorris

      The state pension that the state owes people comes from National Insurance contributions. If you want to include the so-called debt of the state pension (£90 billion per year) you need to include the relevant future NI contributions (£90 billion per year) plus the current surplus in the NI Fund of around £30 billion. So, overall it is an asset not a debt.

      • LB

        No, you have to follow the rules of accountancy, unlike the government.

        First, you have to book the liabilities. I sort of think you’re admitting that.

        Then I agree. You have to book any assets that you own, that generate income or that can be sold to meet those liabilities.

        In both cases, its the present values that get booked to the accounts.

        Now, if the liabilities are less than the assets, you’re probably safe [Asset values can drop for example]. If its the other way round, you have a problem.

        That’s GAAP and FRS17, the relevant accounting standards. Why would you do anything else unless you wanted to hide the mismatch?

        So how big are the liabilities?

        Which assets does the government own to pay them off with? Or are you suggesting we’re owned by the state?

        • petermorris

          A guaranteed flow of income from NI contributors for the next 50 years can be considered an asset, can’t it? If you are going to count the state pension outflows as a liability then I think it is only fair to include the related income flows as well.

          • LB

            If you own the asset that generates the money?

            OK, lets book down people as property of the state, because even that won’t work.

            Now, lets take this example.

            We have a new scheme for 20 year olds. They pay into a separate fund. After a year, they’ve paid in the money, and the state spends it. After all, its a surplus.

            So what assets does the state have? Zero in the account. The asset that it now owns, the 20 year olds, have depreciated, because instead of 45 years of payments, they’ve only got 44 years of payments in them. However, the state’s still got the liability. Still a bust.

            The reason is that unless you book both, and the owning of people is suspect, you don’t know if the assets can pay for the liabilities. You’ve assume that they must do. I’m telling you that the slaves of the state don’t generate enough profit to pay for the debts.

            The debts come to 7,000 bn. The slaves generate 550 bn. The slaves cost 700 bn to feed, for medical, …

            How can you pay a debt that comes to 14 times earnings, when you’ve an overspending problem? ie. The slaves cost more to run than they generate. So you’re assumption of them being an asset is wrong. They are a liability

  • 2trueblue

    As you say Liebore are making the most of it. It would be helpful if journalists and the media would us the correct words so that we were all on the same page. But I guess it does no suit as some do not understand which is which.

  • itdoesntaddup

    It does depend what you are calling the debt. You are using the
    definition PSND ex. Perhaps Cameron is using PSND inc. That was
    £2,225.95bn just before the election. It is now £2,204.845bn.
    Unfortunately, it is now rising quite fast having been a low as
    £2,133.938bn in June 2012. The “inc” includes the banking sector stuff
    you’re keeping off balance sheet in your measure (designed to save Brown’s blushes). See page 43 and page

    So PSND is rising, but it’s still lower than when the government came in.

    • LB

      And all the pensions debts. 5,300 bn there – ONS

  • Bluesman

    Oh what a tangled web we weave when first we Cammie to deceive.

    Or should we now refer to this as “Norwegian Practices”?