Rachel Reeves discusses work to grow UK economy
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Rachel Reeves is taking a leaf out of the European Union's book as she explores ways of getting around tight fiscal rules relating to national debt in order to spend more public money, a UK banking expert has claimed.
Bob Lyddon was commenting after the Chancellor travelled to North America last week to outline her vision for growth and "bang the drum" for a new National Wealth Fund, backed by ￡7.3 billion to catalyse further private investment.
However, Mr Lyddon, the founder of Lyddon Consulting Services, suggested her words masked an attempt to, in effect, fiddle the books.
He told Express.co.uk: "According to the Office for National Statistics (ONS) the UK’s national debt in June was 99.5 percent of the size of the economy - the GDP or Gross National Product, which is about ￡2.3 trillion.
"Rachel Reeves wants to spend more. Creating room and quickly requires some rebasing of the definition of the national debt, or ‘creative accounting’.”
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Rachel Reeves and European Commission President Ursula von der Leyen (Image: GETTY)
Chancellor Rachel Reeves delivers her first speech on the UK economy (Image: Kirsty O'Connor / Treasury)
Such an approach was not so easy, Mr Lyddon pointed out.
He explained: "The ONS’ measure is ‘Public sector net debt’ or PSND, which is already ￡500 billion lower than the common measure - ‘General government gross debt’ or GGGD.”
GGGD refers to all the debts of the central government, provincial and municipal authorities, and of government agencies which are not ultimately responsible for their own finances. In June, the UK’s GGGD figure was ￡2.8 trillion.
Mr Lyddon warned: ”Reducing this by netting off the value any publicly-owned assets achieves nothing; indeed their value is negative so including them makes the situation worse.
”Excluding the debts of central banks works for the EU - Eurozone national central banks owed one another ￡1 trillion outside GGGD at the end of 2023, through the TARGET2 payment system."
However, any attempt to quantify the Bank of England’s ‘debt’ was confusing and extremely complex, Mr Lyddon cautioned.
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He said: “It is a loss of ￡181.7 billion which is being realised quarter-by-quarter via payments from the taxpayer to the Bank. Without this loss, the UK’s debt would be 91.6 per cent of GDP, 7.9 percent lower."
The Bank had paid ￡728.1 billion for bonds it bought under the heading of Quantitative Easing, and its holding sits in its Weekly Report as a "Loan to Asset Purchase Facility", Mr Lyddon pointed out.
These bonds were now worth ￡546.4 billion, and if the Bank sold them all, it could therefore claim the difference of ￡181.7 billion from HM Treasury, who, in turn would raise the money by issuing new national debt, for which UK citizens and businesses would be responsible, he warned.
Mr Lyddon continued: "The avenue for Reeves to explore is other exclusions from GGGD through which the EU’s public debt has ballooned from its already negative level of 88.7 percent of GDP in the Eurozone and 82 percent in the EU as a whole.”
There were two specific tactics Ms Reeves could borrow from the bloc, he emphasised.
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Firstly there are the debts of member state public entities which fall outside the scope of ‘general government’, totalling ￡5.5 trillion (€6.4 trillion), or 44 percent of EU GDP.
Secondly there were "various guarantees or support obligations towards European institutions for the business they have transacted”, worth ￡3.25 trillion (€3.8 trillion), or 26 percent of EU GDP.
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Mr Lyddon warned: “The total obligations of EU member states were 160 percent of GDP, and not the much smaller figure of 82 percent for GGGD.
"Obligations of 78 percent of GDP over and above GGGD lurk in the shadows, unacknowledged by the credit rating agencies – like Moody’s and Standard and Poor’s.”
Such an approach had given the EU "carte blanche" to increase their own debts, for example with the ￡640 billion (€750 billion) Coronavirus Recovery Fund, to borrow more in publicly-owned entities which were responsible for their own finances, and to create highly-indebted schemes, mainly for green energy, through the InvestEU programme.
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Mr Lyddon said: "Myopia at the credit rating agencies opens up several channels for Rachel Reeves to borrow big without its optically affecting the UK’s national debt.”
In essence, the Government’s much-heralded Great British Energy and National Wealth Fund initiatives were inspired by the bloc’s InvestEU, enabling Ms Reeves to "part-fund green energy schemes, which then take on large quantities of private debt”, Mr Lyddon argued.
He said: "Via this trickery Rachel Reeves could conjure up a public asset that optically reduces public sector net debt by one percent of GDP, allowing her to borrow the same amount again, now, and spend it, without the UK’s national debt appearing to rise.
"These are the tricks that the EU has been playing for years, and they have increased total public sector obligations to around 160 percent of GDP.
"The credit rating agencies have not noticed. It is just that the EU economy has stagnated under the misallocation of resources and interventionism by the EU authorities."