Furniture, nudity thereof

If anyone uses the phrase ‘the cupboard is bare’ when referring to the UK’s current economic position, this is an excellent indicator that they are entirely clueless about it. For one, it’s an embarrassingly trite and twee metaphor, unlikely to be used by anyone literate; for two, it paints an entirely false picture of the government’s financial situation (also, note that the government precisely and exactly did pay down the national debt as a proportion of GDP, which is the only figure that matters, during the boom times, which makes criticising them for not doing so particularly weird).

As Chris highlights (while also, correctly, pointing out that the current ‘sterling crash’ isn’t one at all – if it were, the pound would have fallen significantly against the euro, which it hasn’t. Rather, it’s a dollar/yen rally), people are still falling over themselves to lend the government money at very low interest rates. That’s an indicator that outside of cutesy-talking-point land, serious people accept there’s plenty of, err, cupboard-room.

While I’m here, a couple of points on the Centre for Policy Studies report that purports to show the UK has a ginormously terrifying public debt. For a start, it’s written by a Tory MP – aren’t think-tanks producing this kind of report supposed to maintain some vague pretence of not being entirely motivated by partisan hackery?

Content-wise, it’s the same report the CPS churn out every year, with the figures slightly updated. And as always, it’s spun ridiculously: the angle is approximately “when you include the PFI Enron accounting, Network Rail’s nationalised in all but name-ness, bank bits, various other dodges and public sector pensions, the national debt is enormous”. In fact, the only non-trivial sums it identifies are PFI payments – which it exaggerates by a factor of more than three by failing to follow anything even vaguely resembling accounting standards, as I’ve already pointed out here – and public sector pensions, which are an order of magnitude larger than any of the other factor, and are the only way authors of this kind of paper can get from “the national debt is 42% of GDP instead of 39%, nobody cares” to “oh my god, the national debt is 150% of GDP and we’re all ruined due to Evil Labour”.

Quite how the hell public sector pensions should be accounted for is a tough question, and not one which has been satisfactorily resolved anywhere by anybody. However, suggesting that the UK is particularly screwed because of Labour’s incompetence and dodging, when actually the problem has existed forever and in every developed economy, is grossly dishonest. It also doesn’t represent debt in the sense of ‘people who have pieces of paper saying you’ll pay them and who’ll sue you if you don’t’ – it’s just a promise from politicians to be nice to old people, and we all know about the iron-like unbreakability of politicians’ promises…

[*] Yes, Network Rail’s GBP20bn debt should be included in the headline figures, as it’s government-guaranteed and not secured against tradeable assets. So should the real PFI number of c.GBP30bn; together, these add an extra 4-5% of GDP to the official national debt figure. I’m happy to confirm for the benefit of readers who question my political neutrality that these should be classed in the national debt proper and that Labour are slippery sods for not doing so (although on the other hand, they were the first ever UK government to move to GAAP for public sector accounting and are one of the first globally to adopt IFRS).

The banks shouldn’t be: it doesn’t make sense to view debt backed by tradeable financial assets as part of The National Debt, since it doesn’t represent money that’ll have to be paid back out of future taxation. At worst, we’re on the hook for the difference between the value of the banks’ mortgage books now and the long-term value of the relevant houses, cushioned by homeowners’ wiped-out equity. Even if we have a two-year depression and house prices fall 40% from their peak, the loss potential isn’t high.

5 thoughts on “Furniture, nudity thereof”

  1. "However, suggesting that the UK is particularly screwed because of Labour’s incompetence and dodging, when actually the problem has existed forever and in every developed economy, is grossly dishonest"

    Silly me, and there was I thinking that for the last ten years 'ur wee Gordie' had used every trick in the book to get as many people hanging off the State teat as possible in order to ensure high employment in Labour areas and to solidify the Labour vote with handsome pension promises. Thank goodness you're here, 'JB', to put me right.

    Mind you, I wouldn't be quite as sanguine as you in supposing that governments can break financial promises to their voters. These days that sort of thing is illegal under EU rules.

    You complain that the author of the report is guilty of being non-specific with regard to certain items but, apart from teasing us in the manner of a trailer for a particularly gruesome horror film, with phrases such as "public sector pensions, which are an order of magnitude larger than any of the other factor", you fail to give us any numbers! You don't work for the Treasury, do you?

  2. also, note that the government precisely and exactly did pay down the national debt as a proportion of GDP

    If I get a better job, double my income, and at the same time remortgage my house to borrow an extra 50%, and blow it all on exotic holidays and exotic women, I don't really think I can be said to have "paid down my debt", can I?

  3. a) the proportion of people in public sector employment has barely increased, so I'm glad to dispel your crazy notions.

    b) what EU rules?

    c) for the comparison to stick the loan needs to be to buy a better house, not for current spending. If you end up in the new house with a mortgage that's 3x your income, instead of your prior situation of having a mortgage that was 4x your income, then yes, I'd say you'd paid down your debt in some meaningful senses.

  4. "During the period 1991 to 1998, public sector employment fell every year, reducing overall by 815,000. From 1998 to 2004, public sector employment rose every year and is now 583,000 (11 per cent) higher than in June 1998. It is still, however, below the levels of 1991 and 1992." http://www.statistics.gov.uk/CCI/article.asp?ID=1

    Now, remind me, Mr. Band, when did 'ur wee Gordie' become Chancellor?

    To be fair to both of us, we are 'relying' on government statistics which is somewhat akin to depending on Mystic Meg for stock market forecasts! I am not sure what they mean, exactly and precisely, by "Public Sector Employment". Does it include, as it should, all those amorphus entities which are what I call 'pretend private' but which utterly depend for their existence on government money (or, *my* money as I fondly think of it)?

  5. # people vs % people.

    I assume Serco prison employees, Onyx dustmen, etc are counted as private sector, although most of that contracting took place pre-1997 (and indeed, was what fuelled the decline 1991-1998)

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