Darling's dodgy accounting: the hidden £135 billion

April 22, 2009 6:39 PM

Government ministers have led the pack in condemning banks for failing to come clean about the true value of the toxic assets on their balance sheets.  But is the Government any better itself?


Alistair darling has claimed to be “transparent” in confessing that the banking bailout will cost us 3.5% of GDP – but it is not obvious where or when this cost is actually recognised in his Budget projections.  Perhaps it is buried away in the forecast of the borrowing requirements?


One thing is certainly buried away in the small print: how Darling is massaging the national debt.  The headline borrowing figures are frightening enough but they actually obscure the true liabilities taken on by taxpayers through Alistair’s generous “financial sector interventions”.  At the back of the red book are a set of admissions that the Budget projections ignore both the potential final cost of the interventions and the liabilities of the nationalised banks (FSBR para C.99).


Why?  Well, apparently, although the Government and the Office for National Statistics now agree that RBS and Lloyds have been nationalised, “ONS have not yet been able to calculate the impact of these banks’ balance sheets on Public Sector Net Debt and have said that this may take some time to complete” (FSBR para C.104).  Really?  Six months not long enough to add a few numbers together?  The poor lambs must be really busy.


What does this mean?  It means that the bank bailout is excluded from the headline national debt.  So, if for example, the Government borrowed £1 billion to buy bank shares costing £1 billion, Alistair Darling has decided that the value of the shares somehow cancels out the borrowing and he can claim that the borrowing has not happened.  True debt is therefore much higher than the Government admits, and the real position is:


WNdodgydebttable  
Source: FSBR, Table C14


Furthermore, as everyone knows, the share prices of the banks have fallen massively since the “interventions” first began.  RBS has dropped from over 100p per share to about 30p (having touched 10p) and Lloyds has fallen from over 200p per share to about 100p (having briefly gone below 50p).  But the Government is claiming that its shares are still worth what it paid for them back in the autumn.

So, Alistair Darling is:




  • Hiding the true level of Government liabilities by using accounting conventions about when he can recognise costs and losses.



  • Refusing to mark down the value of toxic assets to reflect their true market value.



Which, of course, is what the dodgy banks are supposed to have been doing wrong.

Government ministers have led the pack in condemning banks for failing to come clean about the true value of the toxic assets on their balance sheets.  But is the Government any better itself?


Alistair darling has claimed to be “transparent” in confessing that the banking bailout will cost us 3.5% of GDP – but it is not obvious where or when this cost is actually recognised in his Budget projections.  Perhaps it is buried away in the forecast of the borrowing requirements?


One thing is certainly buried away in the small print: how Darling is massaging the national debt.  The headline borrowing figures are frightening enough but they actually obscure the true liabilities taken on by taxpayers through Alistair’s generous “financial sector interventions”.  At the back of the red book are a set of admissions that the Budget projections ignore both the potential final cost of the interventions and the liabilities of the nationalised banks (FSBR para C.99).


Why?  Well, apparently, although the Government and the Office for National Statistics now agree that RBS and Lloyds have been nationalised, “ONS have not yet been able to calculate the impact of these banks’ balance sheets on Public Sector Net Debt and have said that this may take some time to complete” (FSBR para C.104).  Really?  Six months not long enough to add a few numbers together?  The poor lambs must be really busy.


What does this mean?  It means that the bank bailout is excluded from the headline national debt.  So, if for example, the Government borrowed £1 billion to buy bank shares costing £1 billion, Alistair Darling has decided that the value of the shares somehow cancels out the borrowing and he can claim that the borrowing has not happened.  True debt is therefore much higher than the Government admits, and the real position is:


WNdodgydebttable  
Source: FSBR, Table C14


Furthermore, as everyone knows, the share prices of the banks have fallen massively since the “interventions” first began.  RBS has dropped from over 100p per share to about 30p (having touched 10p) and Lloyds has fallen from over 200p per share to about 100p (having briefly gone below 50p).  But the Government is claiming that its shares are still worth what it paid for them back in the autumn.

So, Alistair Darling is:




  • Hiding the true level of Government liabilities by using accounting conventions about when he can recognise costs and losses.



  • Refusing to mark down the value of toxic assets to reflect their true market value.



Which, of course, is what the dodgy banks are supposed to have been doing wrong.

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