UK debt decreased by 1.4 trillion in 1 year

[mickythefish]

Anyone care to explain that money now is not just numbers on a screen, when it was announced that UK debt has reduced by 1.4 trillion in a year, due to interest rate rises?

https://www.taxresearch.org.uk/Blog/2024/11/29/the...

Edited by mickythefish on Friday 29th November 15:41

[otolith]

The description of what happened seems to make sense, but I'm not sure about the conclusions drawn from it - they come with some baggage.

https://en.wikipedia.org/wiki/Richard_Murphy_(tax_...

[onetwothreefour]

I think the point is that the present value of assets and liabilities can change over time for more-or-less independent reasons. To accurately reflect the current value of the liability/asset which is a long-term liability/asset, you have to take account of how the interest rates will affect the cost / value of the debt/asset including future interest.

I think this is a similar situation: no-one knows what future interest rates will be, so they use today's.

It is not that money has suddently poured into the government's bank account, this is a technical revaluation of long-term debt based on changes to (current) interest rates. There is no short-term impact on the government's finances, so they can't rely on this now, just as if the interest rates go (as they in fact did) in the opposite direction, we don't have to panic.

Interest rates are not set with the goal of modifying the value of the government's long term pension liabilities, but are instead set to generally improve the short/medium-term state of the economy (and thus to improve, if you like, the profit-and-loss statement, rather than the balance sheet).

In short, while technically correct, the analysis has no real short term practical value.

[Hill92]

Best to go the source:

https://www.gov.uk/government/publications/whole-o...

Pages 15 and 47-51 in the main PDF explain the movement in public sector pension liabilities due to discount rates.

Edited by Hill92 on Sunday 1st December 16:54

[otolith]

onetwothreefour said:

In short, while technically correct, the analysis has no real short term practical value.

The author of the linked article is one of those people who sees the short term practical value of it as demonstrating that we really shouldn't be scared of running a humongous deficit and running up enormous debt - he's an architect of Corbynomics.

[Countdown]

My understanding was that the recent period of inflation had reduced the value of future cost of liabilities in terms of today's prices.

[Jon39]

That is a brilliant headline.
It will enable the government to borrow far more now.

The UK general government gross debt at the end of 2023, was published as £2,720.8 billion.

The total annual interest that we all have to pay on central government debt was £7.4 billion as at June 2024.
It was stated to be £12.9 billion one year earlier, largely because the interest payable on index-linked gilts rises and falls with the
Retail Prices Index.
£7.4 billion is only 0.27%, therefore indicating that the interest cost figure quoted must be nonsense.

What is rarely mentioned, are the public sector pensions liabilities. Telephone numbers apparently.
The government minister's answer to that will be the usual, "That is not my problem, one of my successors will deal with that issue, next question".

[mickythefish]

Yes the government is still paying 120 billion on interest alone, on debts a year. If global interests go up easily pay 200 billion plus growth rate is dropping as they are increasing taxes lol and debt.

Still offering 30% civil service pensions, crazy

[Nomme de Plum]

mickythefish said:

Yes the government is still paying 120 billion on interest alone, on debts a year. If global interests go up easily pay 200 billion plus growth rate is dropping as they are increasing taxes lol and debt.

Still offering 30% civil service pensions, crazy

What is a 30% civil service pension.

We all had the chance to be a civil servant. It is possible to earn and save much more in private enterprise.

[pheonix478]

otolith said:

The description of what happened seems to make sense, but I'm not sure about the conclusions drawn from it - they come with some baggage.

https://en.wikipedia.org/wiki/Richard_Murphy_(tax_...

Almost certainly nailed it. Without even reading it (I've wasted far too much time reading Murphy's drivel in the past) I'm going to guess the present value of government's future liabilities has decreased because they are discounting at a higher interest rate? Almost entirely meaningless accounting smoke and mirrors being used by a hard left 'academic' to push his usual political agenda.

[remedy]

Where are these interest payments going? The figures banded around are mind-blowing. The US is 30T in the hole, as I understand it.
Who or what is getting the interest?

[Hill92]

remedy said:

Where are these interest payments going? The figures banded around are mind-blowing. The US is 30T in the hole, as I understand it.
Who or what is getting the interest?

The interest is paid to owners of governments bonds (Gilts in the UK): this is everyone from the Bank of England (quantitative easing) to pension schemes and insurance funds looking for long term investments to match their long term liabilities to international investors and banks to retail investors like you and me.

You can see a full breakdown in the lower half of page 3 here:

https://www.dmo.gov.uk/media/2eqce2qp/apr-jun24.pd...

[leef44]

And just look on the Finance threads to see where people are using trading apps to buy gilts.

[pheonix478]

Countdown said:

My understanding was that the recent period of inflation had reduced the value of future cost of liabilities in terms of today's prices.

No if anything inflation increases the future liability because many of your liabilities, like pensions and public sector salaries, are inflation linked. Higher interest rates mean those future liabilities are discounted at a higher rate to produce a lower present value aka lower debt in "today's money". In practice it's meaningless accounting guff. The liability is what it is in the future and inflation makes it bigger.

[isaldiri]

Jon39 said:

The UK general government gross debt at the end of 2023, was published as £2,720.8 billion.

The total annual interest that we all have to pay on central government debt was £7.4 billion as at June 2024.
It was stated to be £12.9 billion one year earlier, largely because the interest payable on index-linked gilts rises and falls with the
Retail Prices Index.
£7.4 billion is only 0.27%, therefore indicating that the interest cost figure quoted must be nonsense.

Ahem. The interest for only the month of June 2024 that was paid was £7.4 billion. The total annual interest needed to be paid on government debt is......a heck of a lot higher than that 7.4b you mentioned above.