Sage Blog

We knew it was going to be bad.

But as the first official breakdown into what the Government owes is published, the UK’s debt crisis appears to be much worse than anyone thought.

Steve Porter, Sage Accountants Division

New figures confirm that Britain is now in the red to the tune of £4 trillion – a hefty £65,000 per person. And experts say that as analysts continue to pore over the country’s post-election finances, the figure could rise even further.

So how does it all add up? And where do we go from here?

According to research from the Office of National Statistics (ONS), the amount owed is double that previously predicted by analysts – including the Centre for Economics and Business Research.

ONS experts say our borrowing is now so huge it would take each of the UK’s 62 million residents five years to pay off their share.

Their report, published last month, attempts to present a comprehensive review of our debt by adopting an approach pioneered by former Prime Minister, Margaret Thatcher.

Thatcher advised assessing spending and debt in the same way that households calculate what they can and can’t afford.

Round up of our financial health

The ONS says their survey represents the first realistic round up of our financial health since the election and looks at amounts spent on public sector and state pensions, bank bailouts and costs incurred by Labour’s Private Finance Initiative.

The figures are truly mind-boggling. The report calculates there is now a net public sector debt of £1.08 trillion but values state assets – including the worth of every school, hospital, office, council house, railway, ship, aircraft, vehicles and land – at £1.4 trillion.

Analysts added the large amounts spent on pensions – there is some dispute about these but the ONS estimates the public sector pot is £1.2 trillion and the state pot £1.35 trillion – to the additional costs taxpayers must cover, including £40billion for decommissioning old nuclear power stations and £500billion for contingencies.

Another £1trillion to £1.5trillion was spent on banking bailouts and take-overs, setting the total debt at around £4 trillion.

More bad news to come?

ONS chief economist Joe Grice said that the estimates were ‘important steps to help assessment of the public finances and their sustainability.’ But others have warned that there could be more bad news to come.

Mike Denham from the TaxPayers’ Alliance warned that the amount could double as the true cost of helping the banks is revealed and our pensionable population increases.

As he says: “Once you take account of the full extent of state pension liabilities and other costs associated with an ageing population it may be that the real liability could be double even these figures.”

For now, the Treasury’s response has been to establish an Office for Budget Responsibility and a Public Service Pension Commission to look into spending and sustainability respectively – amid fears about cuts and freezes.

Managing public finances

But professional bodies like the Institute of Chartered Accountants in England and Wales (ICAEW) say more wide-scale action is needed to address the problem and are calling for an overhaul of the way public finances are managed.

Chief executive, Michael Izza, explains: “While there are important debates to be had about specific spending cuts, I believe that meaningful reform is necessary to underpin sustainable public finances over the long term and create a culture of fiscal responsibility.”

As he says, there is still a lot of number crunching to be done but finding meaningful, permanent solutions to our debt problem is a challenge we all face.

Thinking business

At Sage our aim is to do our bit in terms of helping sustain a slow but steady recovery. We pride ourselves on our mantra of ‘thinking business’, and this includes an understanding of how important is to keep a track of the financial health of your company. We know the value of financial control and visibility, and this is something that we try and weave into everything we do – whether as part of our software solutions or the advice we offer via our wide-reaching support network.

Business advice and Accountants

Coming specifically from Sage Accountants’ Division, we’re also aware of the key role that accountants can play here – in terms of providing the right software and support to businesses. After all, in our last Pulse survey we saw that small and medium-sized companies now see accountants as their first port of call for business advice.

We’re all in it together, and the time and cost savings that we can produce from our continued close relationships – understanding the needs of a business or practice and offering the most efficient solutions or guidance – mean that we can all play our own part in edging towards economic recovery.

Steve Porter, Sage Accountants’ Division