I have been continuing my studies into how money works – inspired by the excellent folk at http://PositiveMoney.org.uk
This has led me to the High Wycombe MP – Steve Barker – who is a director of the Cobden Centre and a thinker of some depth.
In turn, he led me to the Institute of Economic Affairs and Nick Silver, who wrote a shocking and sobering report in 2008 – A Bankruptcy Foretold – about the real size of UK debt – when you account for pension (and other) liabilities in the way you would for a company.
With the latest figures, UK government debt is not £772 billion (54% of GDP) but £4.8 trillion (333% of GDP).
The figures quantify the situation, but what moved me most was his succinct summing up when he had to update the figure to £6.5 trillion:
Looked at this way, the UK is effectively an enormous unfunded and effectively bankrupt pension scheme, with a large speculative holding in some banks and a sideline in running a small island state off the northern coast of France.
I wonder – is it better to continue with the perverse (but accepted for countries) accounting policy that ignores pension liabilities, or face the reality that the UK – if it were a company – would be bankrupt?
Would that acceptance change our responses to anything – in particular, the spending cuts?
Somehow, I doubt it.
2 replies on “Running the UK is a sideline”
Interesting points, Alex. It would be interesting to see some comparison tables with those kinds of figures. Where, for example, do ’emerging’ economies fit? What about the former Soviet block which (I guess) didn’t inherit a massive pension deficit… And perhaps some per capita comparisons with places like Germany. What DID happen to E German pensions post-reunification?
Nigel didn’t do the calculations for any other economies, and I don’t know if anyone else has.
In fact, on thinking about it more, I am beginning to question the relevance of using the corporate approach. Why did accounting practices evolve to value future liabilities of companies in the way they did? Presumably because of the existence of shareholders, the fact that a company can be sold, and the fact that a company can be wound down.
So it makes sense to have a way of putting a value on a company in the context of shareholder value and selling/winding down.
But countries don’t have such a context, so perhaps the asset-based calculation is meanlingless, and it DOES make more sense to use the cash-flow based model.
But still – 54% of GDP is not a happy proportion!