What is the national debt? What are the debts of the UK banks?

Since we have seen a certain amount of creeping nationalization, it is important to realise the potential public liabilities that the public sector might be taking on, in comparison with the total government debt.

First: How much is government debt?
Gross government debt is a stock of how much the government owes the private sector.
The value of gross public debt is about three quarters of a trillion pounds (£774bn); the net debt about £600bn) http://www.hm-treasury.gov.uk/psf_statistics.htm
Pensions liabilities could be added to this (maybe about £530bn). http://www.telegraph.co.uk/finance/2944530/National-debt-may-soar-above-andpound1,000bn.html
PFI liabilities are around £60bn (capital value)-£180bn (total repayment)
So it seems that rougly speaking, the UK public debt is around £600+£530+£100 or £1.2trillion. This is a stock.

(UK GDP (a flow) is about £1.5 trillion. http://www.statistics.gov.uk/STATBASE/tsdataset.asp?vlnk=574&More=N&All=Y . Therefore the total UK public liabilities are about 80% of the flow of income into the british economy. To make the stock and flow comparable if we payed a 5% interest rate, interest payments would be around 4% of GDP.)

Second: What is the value of the liabilities of the banks?
Now let's compare with the balance sheets of the banks (I'll keep the two bits of the Lloyds banking group seperate):

Lloyds TSB
Assets of £706bn, Liabilities of £681bn. (net assets of £25bn).

Assets £442bn, Liabilities of £370bn

Assets £924bn; Liabilities £900bn.


So, the conclusion is total liabilities
UK Gross Public Debt £770bn
Public Pensions £530bn
PFI £100bn
Total Gross Public Debt £1400bn

Here are the Gross Banking Liabilities (in brackets, the loss incurred for a 10% fall in asset values due to bad debt):
  • Lloyds TSB £680bn (£71bn)
  • HBOS £370bn (£44bn)
  • Barclays £900bn (£92bn)
  • RBS: over £1tr
These liabilities are large in comparison to the UK existing public debt (£700bn).


Tim Joslin said...

"the loss incurred for a 10% fall in asset values due to bad debt"

Be careful (Maverecon makes the same leap of logic as you imply). This 10% fall must occur over a period of time (which it might be expedient to stretch!). During that time the "good debt" has been earning money. E.g. take credit cards. Even if no-one ever paid their loan, the lenders could STILL profit because the interest rate is so high that it could exceed the principal (+ the bank's funding costs) before the debt is written off! The ideal situation from the lender's pov would be if everyone's cc bill was only eventually paid off from their estate when they died. Foreclosing before then is to kill the golden goose paying off as much as it can each month! Only being slightly facetious ;-)

As I said in a comment on another post, the best strategy is just to keep the banks ticking along as going concerns and not worry about whether they are "solvent" or not. Btw this is what has happened in the past, e.g. during the "Third World" Debt Crisis. Perhaps modern regulation has contributed to the ongoing crisis!

Btw HSBC, Santander (big time) and the mutuals may also be worth worrying about for different reasons.