The ONS has announced that both RBS and Lloyds Banking Group will be reclassified as public sector from October 13 2008, when Government recapitalisation was agreed. Public sector finance statistics for January 2009 show that public debt currently stands at £703billion, which includes £50 billion from the bailout of Bradford and Bingley last year. According to some press reports, when the impact of Lloyds Banking Group and RBS are taken into account, the ONS predicts that the impact to public sector net debt could be between £1 trillion and £1.5trillion, which could bring the UK's total debt to more than £2 trillion.
This isn’t half of the story. The £700 billion of national debt excludes PFI, say £100 billion and about the same again in various other off-balance sheet wheezes such as Network Rail's debt and private sector pension protection. There are also about £1 trillion of UK public sector pension liabilities which other governments show as liabilities in their accounts.
For example, in America, to pay pensions the government issues debt securities to a Federal pension fund, so that pensions are fully funded albeit by a claim on the government. The net effect is that pension fund holds a tangible claim on the government and the liability ends up being properly recorded as part of the US National Debt. In the UK, the government hides its head in the sand.
Add to that IAS accounting changes which mean that RBS's liabilities are no longer the trillion or so in their 2007 accounts that the ONS probably used for their calculations but probably closer to £1.9 trillion, and we have no idea what the comparable ajustment is for Lloyds/HBOS.
So instead of the £2.2 trillion or so that the ONS is talking about, the real scale of true liabilities is actually around £4.3 trillion, or 300% of GDP.