Richard Murphy: Why obsess over a national debt that doesn't exist?

As some readers of this column will know, I first got involved in Scottish political debate when I got annoyed about GERS. Most readers will be familiar with the so-called Government Expenditure and Revenue Scotland statement, which from the time that I first reviewed it I have called CRAp. Please forgive the language, but CRAp is, in this context, an acronym, standing for a completely rubbish approximation to the truth.

I’ve explained my dislike of GERS many times, not least in Holyrood and in The National.  I won’t do so again now. But what I had hoped was that such a deliberate misstatement of economic fact was a one-off event motivated by the loathing of Westminster politicians for all things to do with Scottish independence. I now know that I was naive to think so.

READ MORE: Tourist tax Scotland: Why changes to the policy will benefit the rich

Two examples illustrate my point. As the supposedly independent Institute for Fiscal Studies (which is in no way independent of the mainstream neoliberal thinking that is pro-austerity and anti-government to its core) had reported today, any new UK government elected this year will face an economic crisis. 

If that government is to cut the levels of the so-called UK government national debt, as both the Tories and Labour say they want to do, then the IFS predicts that it will have to both impose austerity and high levels of tax on those who can least afford them (in other words, everyone, but the rich). However, what the IFS never does is ask just what the national debt really is, or who it is owed to, or why we are even obsessing about it when it is just possible that its existence might be a really good thing.

The reality is, as I explained in a blog post in December 2023, is that the UK’s supposed national debt is now at least one trillion pounds less that is claimed by the UK Office for National Statistics. There are three reasons.

Firstly, £700 billion of this so-called debt is owned by the Government, and you can’t owe yourself money. So that debt simply is not there to be counted.

Secondly, almost £300bn of the debt is said to be owed by the Bank of England, but there is literally no such liability owing to anyone on its audited balance sheet, which means that claim cannot be true.

And, finally, you cannot substitute the £900bn or more of money gifted by UK governments to UK banks during the course of the quantitative easing era to the national debt figure as an alternative to the above numbers, as some claim to be possible, because the balances in question are literally money and so cannot be repaid without using more government created money, meaning that they are not repayable at all in any conventional sense, and so cannot, therefore, be debt.

This analysis will, I admit, be mind-bending for some but should be completely comprehensible to any trained economist. What is more, any trained accountant should be able to spot what I did, which is that the Office for National Statistics claim for the size of the national debt is based on its refusal to use double-entry bookkeeping methods to underpin its calculations. That is scandalous because that system of accounting is designed to prevent misstatements of the sort it is making, which I have drawn to its attention time and again.

The consequence is obvious, even if you did not follow all the detail. It is that UK political parties are obsessing about a level of debt that does not exist. Even worse, they’re obsessing about how to repay debt that people do not want repaid.

For example, the UK national debt includes money saved in premium bonds, which people seem quite keen to own. It also includes National Savings & Investments (NS&I) bank accounts, which people have chosen to use. And it includes all the sums saved by pension funds in government bonds because they’re the safest place to put pensioners’ money for the long term.

READ MORE: Reinventing Scotland: A wellbeing expert's nine tips for a longer life

Although all these are all good things, politicians and the Institute for Fiscal Studies are obsessed about not wanting people to have them, which is totally inexplicable. And it is CRAp accounting that produced this bizarre outcome.

And, in case you need another example of that accounting, the head of the supposedly independent Office for Budget Responsibility (OBR) admitted this week that the November forecast that his organisation presented to accompany that month’s Autumn Statement was based on numbers that he suggested were worse than a work of fiction. His explanation for saying so was that he thought a work of fiction required planning and aforethought, and the numbers his organisation used, as supplied by the government, were ballpark and unexplained.

That, you might say, was Jeremy Hunt’s fault and not the OBR’s, barring one thing, and that was that the OBR did not admit this last November, leaving us in the dark with CRAp data for more than two months.

Jeremy Hunt is now planning tax cuts in March, no doubt based upon similarly dubious forecasts, on which the OBR might also fail to tell us the truth, the whole truth, and nothing but the truth at the time that they submit them.

The outcome of this is that we will suffer austerity, and some might face poverty and even destitution as a result of deliberate misstatement of government accounting data created with the apparent intention of imposing misery on large parts of the UK’s population.

There is nothing that I can say or do that will prevent Scottish politicians from doing something similar if it were independent. That risk obviously exists. But at least it is only a risk. The alternative is that we now know that this is going on routinely in Westminster. So why is Scotland putting up with it?