Monday, 24 September 2007

The Sun (2)

Having read today's edition in full, hats off to them.

Trevor Kavanagh mentions, in passing but IN CAPITALS, that besides the official national debt of £550-odd billion, The Goblin King is hiding a few tens of billions under PFI and PPP stuff, as well as ONE THOUSAND BILLION POUNDS for unfunded public sector pensions.

That's eqivalent to a liability of £30,000 for each and every taxpayer, to be paid off on an interest-only basis for all eternity.


Anonymous said...

"as well as ONE THOUSAND BILLION POUNDS for unfunded public sector pensions."

See my comment on this idea here

Mark Wadsworth said...

David, for sure, the NPV of this liability fluctuates wildly, depending on the discount rate you use. And it was indeed Neil Record's calc's that sparked this off, but other actuaries arrived a similar figure.

Neil was working on rates of 1.5% derived from govt backed index linked bonds as at 2005. They are currently paying inflation plus 1.35% tax-free, see here, so if anything the gross liability has increased.

And sod it, even if the rate were to double to 3%, that only gets the liability down to £500 billion, as much again as offical government debt, so a pretty scary figure!

Anonymous said...

Every document that I've read has Neil using a 31st March 2006 gilt yield and he quotes 1.1%. See here (pdf) for example.

Also, your NS&I link doesn't seem to give comparable yield prices, and those gilts are only 3-5 years out, whereas Neil's 1.1% yield is 18 years out. Look here for current yields.

Just now, I get 2022, 15 years ahead yielding 1.5%, 2027, yielding in a range 1.22%->1.35%

For Neil's document "Sir Humphrey's Leagacy", the yields at those dates were lower (by eye, 1.3ish and 1.2ish), so I'd say the 2006 liability would now be below 1000bn. I don't know what has been added since.

Also, to contrast 3-5 year yields against NS&I offerings is interesting, with yields at 2 years ranging 1.62%->1.94%, at 4 years 1.86->2.06%, and 6 years ranging 1.95%->2%. Looks like NS&I pocket a pretty penny.

How scarey the liability figures, in either 500bn or 1000bn range, is hard to understand for me. I'm just an interested amateur. I would have thought the important question is: what is the liability as a % of future GDP, since future GDP can be taxed to pay the debt.

However, I still say that Neil Record's constant repeating of the 1 trillion figure, focusing on a particular set of discount values, is still disingenuous. That liability is probably bouncing all over the place. I'd prefer to see a graph over time of that calculation at market rates, if market rates are so important.

Mark Wadsworth said...

The copy I printed off seemed to use around 1.5%, but who cares. As you say, the NPV of the liability now might be less, say £600 billion.

That's about half of annual GDP or roughly as much again as official govt debt plus PFI debts.

Being realistic, the cash cost stays the same either way. IF the govt did their accounts properly, they'd 'fess up to a whacking great deficit, and because of the way accounts work, the future annual cost might be less than the cash cost, i.e. actual pensions paid out in cash.

The real point is that there are too many public sector workers, many of whom are overpaid and many of whom have been given ridiculously generous pension promises.