Britain’s debt: The untold story

The true scale of Britain's national indebtedness was laid bare by the Office for National Statistics yesterday: almost £4 trillion, or £4,000bn, about four times higher than previously acknowledged.

It quantifies the burden that will be placed on future generations, and it is the ONS's first attempt to draw together the "off-balance-sheet" liabilities that have been accumulated by the state. The figures imply a huge "intergenerational transfer" – broadly in favour of today's "baby boomer" generation at the expense of younger people and future generations.

The debt primarily consists of the cost of public sector and state pensions, and of payments promised to private contractors under private finance initiatives. It far exceeds any of the figures so far published for the national debt, the largest current estimate for which is £903bn. That is projected to rise to £1.3trn by 2015.

If the current generation of taxpayers wanted to remove the higher bills facing their children and grandchildren, they would now be paying around 30 per cent more in tax.

The ONS data strengthens the Government's hand in its attempt to pull down state spending.

The ONS itemised the public sector's main liabilities as:

* Future payments for the state old age pension: £1.1trn to £1.4trn

* Unfunded public sector pensions for teachers, NHS staff and civil servants: £770bn to £1.2trn

* Payments under private finance initiative contracts: £200bn

* Contingent liabilities (eg bank deposit guarantees): £500bn

* Nuclear power plant decommissioning: £45bn

* Impact of financial sector interventions: £1trn to £1.5trn

Leaving aside the possibility of another financial meltdown that would leave the taxpayer with the liabilities of a substantial part of the banking system, the figures suggest that the realistic total liabilities of the public sector could be as much as £3.8trn (£3,800,000,000,000).

The ONS says that although much work remains to be done in constructing a comprehensive public sector "balance sheet" of assets and liabilities, it is clear that the current figure usually quoted – "public sector net debt", colloquially called "the national debt" – is "selective" and incomplete.

In research published alongside the ONS data, the National Institute of Economic and Social Research (NIESR) said that current taxpayers ought to be paying around 30 per cent more in tax to relieve future generations of that "unfair" burden. That also takes account of the additional health needs of the baby boomers as they reach their autumn years.

Failure to cut back now or raise taxes – and there is little sign of the population clamouring to make life easier for the as-yet-unborn – will leave future taxpayers with an additional burden of £200,000 each over their lifetimes to pay for the public services enjoyed by this and previous generations. Even with current plans to reduce the deficit, the tax bill would still be as high as £150,000 over the life of someone born in 2011.

Martin Weale, director of the NIESR said: "For spending to have simply carried on as from the 2008 Budget would have led to a very high burden on future generations or required a very large tax increase."

The baby boomers and their parents have also benefited from phenomena that are unlikely to be enjoyed by future generations, including: free university education, including maintenance grants; mortgage interest relief at the highest marginal rate of income tax; property booms that saw a massive transfer of wealth from the young to the old; free long-term care for the elderly; the proceeds of privatisations of state assets; and the demutualisation and distribution of reserves of the the former building societies and life offices.

The prospective bill for unfunded public sector pensions, such as those in the NHS, has risen sharply, from £450bn in 2004 to £770bn in 2008. The ONS says the Government would also be responsible for the deficits in other state schemes that are funded either by staff or the employers, such as those covering local authority employees. The deficit there is currently running at £27bn.

The annual bill for pensions to retired health, teaching staff and civil servants was £60.7bn in 2008, about double the schools budget. Pensions payments stood at £35.4bn in 1998. The rise is related to the improvement in public sector salary levels relative to the private sector and to the increase in the number of staff in the public sector.

However, the public sector is still solvent, to the tune of £317bn in 2008, according to the ONS, which is the difference between its liabilities and its assets, everything from foreign exchange reserves to shiny new hospitals.

Joe Grice, chief economist at the ONS, said that the public sector's net worth has fallen in 2008 for the first time since 1999, and that the figure for 2009 would probably be lower as well, given the scale of public borrowing. He added that "whole government accounting", a balance sheet for the public sector which has never previously been attempted, would be published from next year, analogous to a company's balance sheet. The figures would be prepared according to international accounting guidelines.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooksA celebration of British elections
  • Get to the point
2015 General Election

Poll of Polls

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Ashdown Group: Data Scientist - London - £50,000 + bonus

£35000 - £50000 per annum + generous bonus: Ashdown Group: Business Analytics ...

Ashdown Group: IT Project Coordinator (Software Development) - Kingston

£45000 - £50000 per annum: Ashdown Group: IT Project Coordinator (Software Dev...

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power