The Public Debt

Gordon might need to change some of his numbers, don\’t you think?

Taxpayers will have to pay £2 billion to rescue the failed privatisation of London Underground, the Government admitted yesterday.

Ruth Kelly, the Transport Secretary, had to raid the Government’s contingencies fund to settle the debts of Metronet, which ran nine of the twelve underground lines but went bust in July.

The scale of the public liability for Metronet’s failure will be a severe embarrassment to Gordon Brown, who forced through the controversial Public Private Partnership of the Tube when he was Chancellor.

The payment also exposed the fallacy of the Government’s claim that it was transferring risk to the private sector. The five companies that owned Metronet – Balfour Beatty, Thames Water, EDF Energy, Bombardier and Atkins – had to pay only £70 million each towards the debt because they had won guarantees from the Government that limited their liability.

There\’s an awful lot of PFI and infrastructure spending that has such guarantees but which is not counted as part of the public debt. For, we\’re told, the claims are purely theoretical, will never be called upon.

Oh yes?

13 thoughts on “The Public Debt”

  1. PFI is tiny compared to the unfunded and unaccounted future liabilities for taxpayer funded pensions, benefits and healthcare. Funny how the government introduced the likes of FRS17 (a good idea in principle IMO, I’m not qualified to judge the fine detail) but never applied it to their own accounts.

  2. The current lot were the first government in the UK (one of the first in the world) to apply local GAAP and now IFRS to public sector accounting, so slating them for not following accounting standards is a bit questionable.

    [but yes, transfering control without transfering risks isn’t a clever form of privatisation.]

  3. The economic problem–for all people (and for nations as well)–is to balance production and consumption in such a way that the former always outstrips the latter to the degree that the excess can enlarge and improve the productive apparatus of the future. The objective is always the same: constant improvement in current ability to consume without jeopardizing (but improving, rather) that very same ability for those to follow. Such process is exemplified in what is called “the free market” or “capitalism” but is clearly evident in the tool-making-and-using and social-unit-expansion of prehistoric ancestors.

    It is common (even among some writing about economic topics) to speak of debt “burdening future generations.” This description is entirely figurative (and fallacious as far as describing what’s going on). No one, either at law or as a practical matter, is obliged to discharge the debt of his parents (beyond distribution of assets they’d accumulated at the time of their passing).

    Bear in mind that nothing can be consumed without first being produced. When that is borne in mind, it can more clearly be seen that deficit spending and the borrowing to finance it embody taxation–confiscation–of real goods and services IN THE PRESENT–and not some indebtedness levied against future production (which could not, in any case, be collected). The entire process is one through which the raw material of future production/consumption and the machinery of its processing is being diminished and deprived of maintenance and renewal. It is a process clearly anathematic to the instincts and morals of the great majority of humankind; assent in the process is a continuing victory of the political class won first, by appeal to extremely narrow self-interest and secondly (and more immportantly) by economic apologists for the political class in fashioning explanations to disguise and hide the actual process from that same great majority. Power does indeed corrupt–the ruled as well as the rulers–the ruled because they are ignorant and inadvertant and the rulers mostly because
    they’re inclined to view that ignorance and inadvertancy as their own special life advantage.

  4. What about when – as in this case – the taxation is being levied *specifically for* the maintenance and renewal of the infrastructure driving future production?

  5. john b:

    My reference wasn’t to taxation but to the representationn that BORROWING , especially into the distant future, was anything ELSE than taxation in the present.

    I wouldn’t know, not being an accountant, but am inclined to presume that such matters being described as “off-budget” or in a separate accounting are the specific means by which the sleight-of-hand is at least partially concealed from plain view.

  6. john b: Perhaps I was wrong in my earlier comment. Does the government now account for future pension liabilities in their accounts?

  7. Yes – at least, public sector pensions liabilities do.

    Because the state pension is a transfer payment and not a pensions liability, it doesn’t fall within the scope of FRS 17 / IAS 19 (any more than the value of future dole payments given likely unemployment rates does or should…)

  8. But they do account for them, which is the main point – Record’s findings suggest they might be underestimating by up to 20%, but that’s very different from leaving them off the books altogether…

  9. johnb

    So it’s OK to record a patently untrue and deliberately underestimated figure as long as something, anything is recorded. You’ll be telling us next it’s not in the public interest to prosecute criminals because they made a “significant” effort to comply with the law.

  10. No – a Tory thinktank says that the government figure is dubious – neither you nor I have enough knowledge of IAS and UK GAAP to determine whether that’s a fair or a misleading assessment.

    Re your link: if I asked the Inland Revenue whether my tax affairs was legitimate, and they said that they were, I’d be quite grumpy if they subsequently told me I was breaking the law and the CPS were going to bring charges.

  11. john b

    However, if the Inland Revenue said that
    (1) your tax affairs were not in order,
    (2) stated that you had actually defrauded them and
    (3) despite (1) and (2) and solely on the basis that you’d got your (fraudulently misleading) return in on time, they had decided not to prosecute you
    all the other law abiding and honest taxpayers would be more than grumpy – they’d be livid and they’d be right.

  12. What is so annoying is that Metronet outsourced most of its work to the companies who had the shareholdings…

    …and it ran out of money…

    …and we have to pay it…

    We should never have allowed the guarantee – all it did was create a huge sign saying “Milk Me!”.

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