National debt of £2.5 trillion
BRITAIN’S national debt is set to top £2.5 trillion due to the Government bail out of the banking sector, coupled with its borrowing spree.
The UK’s debt mountain raises the prospect of tax rises or an austerity budget. Investec economist Philip Shaw said: “However you calculate the debt, it is unacceptably high. The Government must reverse the trend in the medium term. At some point, there will have to be an austerity budget.”
The national debt currently stands at more than £800 billion on the back of high Government spending and the bailout of failed lenders Northern Rock and Bradford & Bingley. Based upon the Treasury’s current borrowing programme alone, the national debt is likely to hit approximately £1 trillion (£1,000,000,000,000) by the end of the year.
However, statisticians have calculated that the year end total debt could exceed £2.5 trillion because the Office of National Statistics (ONS) is preparing to add the cost of rescuing Lloyds Banking Group and Royal Bank of Scotland (RBS) to the UK’s official debt tally. This could happen as early as this month. The ONS will provide an update the nation’s finances on September 18.
In February, the ONS said saving Lloyds and RBS would add £1.5 trillion to the UK’s national debt. However, on Friday an ONS spokesman warned that as it was still calculating the total cost of the banks bail out, the figure could rise.
The bailouts granted to Lloyds and RBS dwarf the Treasury’s previous efforts. Rescuing Northern Rock and B&B added £130 billion to the UK’s public sector net debt. The Government took a 43 per cent stake in Lloyds and a 70 per cent stake in RBS last October. However, the recent stock market rally and the improving economic environment has prompted the Government to look at ways of reducing its stake in Lloyds.
UK Financial Investments (UKFI), the Government body responsible for the state’s shares in the bailed out banks, is thought to have asked investment banks to submit ideas on how it can reduce its stake in Lloyds.
It is thought that UKFI’s request was prompted by the rapid turnaround and the £690 million profit the Swiss government achieved last month on its UBS shares. UBS was bailed out by the Swiss government at the same time as Lloyds and RBS.
UKFI is trying to choose which investment bank should get the job of floating its RBS and Lloyds shares back onto the stock market.
Additionally, it is understood that Lloyds is on track to agree a deal with the Government next month over the terms of its using the Asset Protection Scheme, which was set up to insure banks against future toxic credit losses.
