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Bailout of banks to cost taxpayer £1,500,000,000,000
Paul Waugh, Deputy Political Editor19 Feb 2009
BRITAIN'S public debt went "off the Richter scale" today as it was confirmed that the Government's bank bailouts had put the nation £1.5 trillion further into the red.
In a blow to Gordon Brown, the Office for National Statistics ruled that the massive liabilities of Royal Bank of Scotland and Lloyds Banking Group should be added to the Treasury's balance sheet.
The £1.5trillion figure is the equivalent of 70-100 per cent of the country's entire economic output.
Current net debt today soared to £703 billion, but the watchdog said that it would top £2 trillion once the banks' liabilities were taken into account.
Its warning came as new figures underlined the damage the recession is inflicting on public finances. Borrowing soared to £67 billion for the first 10 months of the financial year and tax receipts plunged by £7 billion as bankers' bonuses and corporation tax income fell.
Shadow Business Secretary Kenneth Clarke said: "We are beginning to go off the Richter scale in terms of the British experience [of debt]."
He added: "We are only beginning to see the full extent of the indebtedness that's going to pile up and have to be dealt with once the recovery gets under way."
Ministers believe that adding the massive liabilities of RBS and Lloyds to the public debt does not accurately reflect what British taxpayers really owe. The Treasury still insists that over the long term, it can make a profit from the bank bailouts.
Economists and business chiefs warned that borrowing will top £100billion this year.
Government borrowing now stands at 47.8 per cent of the UK's economic output. Last January, it stood at 42.2 per cent.
Despite the growing debt burden, the Government has made it clear it will borrow more money if necessary in order to boost the ailing economy.
Treasury minister Angela Eagle today said now was not the time to cut public spending. She told BBC Radio 4's World at One programme: "We will return the public finances to a sustainable pathway after the recession is over and we'll do that in a fair way."
The impact of the recession on businesses was reflected by a £2.5billion fall in corporation tax revenues compared to 12 months earlier, while VAT income was also £1billion below last year, in part because of the temporary cut in its rate. "The tax take is being hammered by the recession," said Howard Archer, economist at Global Insight.
UBS economist Amit Kara added: "It's clear that public sector finances are deteriorating quite rapidly."
TUC general secretary Brendan Barber said: "It is absolutely right to let the deficit grow. When companies and consumers stop spending, the public sector must fill the gap."
Reader views (15)
The £1.5tr. bailoiut of the banks is surely to make good in large part the losses due to ‘toxic assets’ which it was discovered were worth less than the sums lent to borrowers.
We taxpayers are indirectly paying for those who benefitted from the sales of the overpriced property. The gigantic con was to deceive people that assets could only appreciate, that the good time bubble could inflate endlessly, and that there was endless cash for the asking. So people blindly piled in, and the banks were content to lend for it, driven by their profit and bonus culture.
So there has been a masive transfer of our wealth to those who sold assets at inflated prices to buyers with money provided by the banks, who we now discover were unable to support their lending.
It has been reverse socialism - massive transfers from the poor and the less well-off to the obscenely wealthy. The banks and bankers are on a heads I win tails you lose roll.
- Barrie, essex UK, 20/02/2009 10:33
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Why not split that £1,500,000,000,000 between everyone in the UK? It would certainly cheer us all up. £30,000 each seems better than saving a bank.
- Martin H. Watson, teddington, 20/02/2009 09:12
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I am hoping the time will come when the Government finally recognises the extreme damage to the nations economy, and indeed public rationale - the enormous sums of money expended in the football transfer market and with players wages. This cannot be allowed to continue in such a deflated economic environment as now exists.
- Robert E;-Cid., Hull, East Yorks.,, 20/02/2009 08:45
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The whole World is now suffering for the greed and corruption on Wall St. and The City. No one has been arrested or jailed. Instead lots have been knighted have big pensions or are most likely in government. I give up!
- Frederick, London, 20/02/2009 07:48
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The pound in your pocket is safe' remember when another Labour PM looked us all squarely in the eye and lied his socks off?
Grate Britain...doesn't it.
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Ahhhhh yes ETHANE UK!....I remember it well, as though it were yesterday, it was "Yer Darlin Arold Wilson" what said it!
What he actually said, (as he devalued the pound and went to the I.M.F, cap in hand) was, and I quote, "This will not affect the pound in your pocket"!
It was all downhill from then on for years!
But,.....not to worry,....I found an old Ration Book that was in my late fathers belongings,........plenty of coupons left in it, so, I'm Alright Jack!
GERONIMO
- Geronimo, LONDON MIDDLESEX, 20/02/2009 02:02
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Jim Allen, you're quite right: limited liability is a fundamentally immoral concept, which is why in a sane world lenders demand personal guarantees of new and small businesses without a track record. Unfortunately,in our mad world it's the big boys, the reputable names, who've been spending money like drunken sailors and then running to Gordon for help.These numbers are so numbing that it's hard to care any more.
Brown in turn has thrown petrol on the fire by making gambling debts - which is what most derivative trades really are - enforcable in courts of law for the first time, and by making bankruptcy a much less penal condition, in order to encourage 'enterprise'. That's worked out well.
(Actually, I'm being unfair to drunken sailors: they only squander their OWN money)
- Mdj E10, london, uk, 19/02/2009 23:33
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so not only is the labour party politically, morally and
financially bankrupt, like drowning people they'll
happily drag everybody else down with them. mind you the
alternative options are as dismal a proposition.
i wonder if they'd be so keen to lend the dosh if it was
coming out of their pockets, or labour party coffers.
any fool can lend somebody else's savings.
- M.O'Brien, london.uk, 19/02/2009 18:16
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When the governments nationalised banks say they have written down the value of some of their assets, this dosent mean that they have given them away, the point is that these assets were at one time valuable, the problem is that the people who took these loans out are able to wriggle out of paying what they contractually owe.All this funding which the government is injecting is replacing bad loans, disregarding whether the banks should have lent the money in the first place, insolvency,bankruptcy,voulantry arrangements should be made stricter so that someone who has borrowed HAS to pay it back, even if it takes 10 or more years. They knew what they were doing when they borrowed the money, ok personal circumstances change and people are in real trouble, but its the toxic business debt culture which needs changing, lets stop people starting LTD CO's, running up debts and walking away with creditors money.The rules for small LTD CO information needs to be more open as at present with a small LTD Co you cannot get a balance sheet as to who you are dealing with.
- Jim Alan, Lake District, 19/02/2009 18:04
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David of Battersea. You are both right and wrong. It is now common practice to accept the U.S definition of 1 billion as 1,000 rather than 1,000,000 million.
- Nick (Expat), Hong Kong, 19/02/2009 17:17
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We have been mugged, looted, raped and pillaged by the banksters. Why are we putting up with it instead of destroying the system through civil disorder?
- Neil M., london uk,, 19/02/2009 17:04
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Haven´t the headline writers not put too many 0´s at the top of this article, or maybe I´m wrong!
I thought 1.5 trillion was 1,500 billion, and for what it´s worth a billion is a thousand million
- David, Battersea, 19/02/2009 16:44
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Does anybody realise that £1.5 trillion is the equivalent of some £25,000 per person in the UK?
And you have quoted Angela Eagle, yet another unknown Minister, acting as a Treasury Dept. mouthpiece as saying "we will return the public finances to a sustainable pathway after the recession is over and we'll do that in a fair way."
Who wrote that piece of tripe for her?
She knows like the rest of this Government that she won't be at The Treasury when the recession is over. It'll be down to the Tories to clear up New Labour's dirty work.
- Ray M, Waterlooville, Hants, 19/02/2009 16:26
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These are scrotum-shrivelling amounts of money. Thanks a bunch Gordon.
- Adrian W, East Sussex, 19/02/2009 15:19
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Just wonderful, will Ms Eagle and her political friends help us out from their own vast wealth and extensive pension pots gained at our expense? You can usually safely bet your last groat that what these people predict will be a tiny fraction of what actually materialises.
- Evan Owen, Harlech, Wales, 19/02/2009 15:15
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£1.5 Trillion eh? Wonder how many government MP's Ministers and Lords you could buy for that kind of dough?
Still if we print more money £1.5 Trillion will be worth about ten bucks soon.
'The pound in your pocket is safe' remember when another Labour PM looked us all squarely in the eye and lied his socks off?
Grate Britain...doesn't it.
- Ethan, UK, 19/02/2009 14:57
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