Gordon Brown has proven himself the master of obfuscation when it comes to the public finances. Over the last 12 years he has claimed to have single-handedly ended boom and bust and been the architect of a prudent financial and fiscal policy. Yet, in The Hidden Debt Bombshell, a paper published with The Centre for Policy Studies (click here to download it as a pdf), the true scale of this Government’s catastrophic mishandling of the nation’s finances is laid bare.
The Government claims that Britain’s debt stands at an already shocking £805 billion, equivalent to 57.5% of GDP. This is a significant underestimate. In truth, Britain’s public debt is an astronomical £2.2 trillion, equivalent to 157.2% of GDP. This means that, in addition to grappling with the effects of the recession and credit crunch, every single British household is being hobbled by the ball and chain of public debt to the sum of £85,610.
The Hidden Debt Bombshell brings onto the balance sheet the full cost of projects financed through the PFI, unfunded public sector pension liabilities, contingent liabilities, and the estimated cost of the recent interventions in the financial sector. It reveals that for every £1 Gordon Brown is putting on the balance sheet, he is hiding another £2 off.
Yet this debt figure of £2.2 trillion is only a conservative estimate – the situation may be worse. Most uncertain of all is the impact on the public finances of the Government’s interventions in the financial sector. In his wildly over-optimistic Budget figures in April, the Chancellor suggested that such interventions would, at the very most, amount to 3.5% of GDP. The IMF disagrees, suggesting 9.3% of GDP, equivalent to £130 billion. Yet the figure could be much higher, reaching £3.84 trillion, or 274% of GDP. During unstable times such as these, contingent liabilities can easily solidify into actual liabilities, and it is only fair that the taxpayer knows the size of the potential debts the Government is foisting on them.
This black hole in the finances would cause most responsible governments to act with honesty and prudence. But not this profligate Prime Minister. At the recent Labour Party Conference, Gordon Brown showed no sign of ending his spending spree when he announced yet more spending commitments – all unfunded. At a time when the level of debt is rising at almost £1 billion a day, or a staggering £700,000 a minute, this is economic irresponsibility, plain and simple.
Even the cost of servicing the debt alone is expected to rise to 0.7% – equivalent to the entire international aid commitment outlined in the Millennium Development Goals.
Liabilities have long been hidden off-balance sheet in order to a least maintain the charade of meeting the discredited Golden Rules. But, even now when the Government has had to concede the rules have been "temporarily suspended", it still cannot shake off its reliance on political expediency, accounting trickery and fiscal smoke and mirrors. The British public deserve more than this.
After a year in which trust in politicians has been rocked to its core, and economies have been buffeted by recession, we can all agree on the need for a new economic culture – one of honesty and transparency.
Yet this Government’s credibility crisis will persist as long as it sticks with its "do as I say not do as I do" ethos. Indeed, without any hint of intended irony, the Chancellor has slammed the banking sector for actions identical to its own:
“I agree with… the need for far greater transparency. There also needs to be stricter rules in relation to off-balance sheet activity, which has enabled some banks to get around their regulatory responsibilities. That is clearly not a satisfactory position.”
To demand transparency and accountability in the private sector is a fine aim. But, to refuse to apply this in the public sector treads a dangerous line of hypocrisy and double standards.
It is our children and grandchildren who will be left to pay this debt off for generations to come. The principles of transparency and inter-generational fairness which Labour has so frequently flouted must be rediscovered again. To do this we must urgently establish an Office of Budget Responsibility, as proposed by the Shadow Chancellor George Osborne, to conduct an independent audit of the government books. This is the only way we can be sure that this Government, and any future governments, remain accountable for its actions.
Warning after warning has come from international institutions such as the OECD and the IMF that the Government must bring spending under control. They are right. Only last week the EU Commission cautioned that Britain’s worsening budget deficit is creating serious concerns about its economic future, with our economy now ranking alongside the likes of Latvia and Romania.
Markets and investors need confidence that the UK Government both understands the state of the public finances and is preparing the necessary reforms. Yet Gordon Brown marches blithely on, continuing to play Russian roulette with the nation’s finances. These are not the actions of a responsible government.
If we are to build out of this recession successfully and put this country on a sustainable economic trajectory, we need an entirely new and forward-thinking fiscal framework enmeshed within a culture of honesty and transparency – not Labour’s pervasive debt dependency and inability to admit the truth. Any less than this is an insult to taxpayers both today and for generations to come and will undermine the economic recovery we need to bring the growth, jobs and hope that Britain so desperately needs.