Britain is closer to bankruptcy than anyone feared
If it was a company the shares would have crashed, and the liquidators would be getting ready to take control. The National Audit Office has today refused to sign off on the UK’s accounts, citing a lack of information from local authorities on their potential liabilities. They can hardly be blamed for that. The grim truth is that the country’s balance sheet is a mess – and we may be a lot closer to bankruptcy than we realise.
The Chancellor Rachel Reeves may claim to have taken the “tough decisions” to put the national finances back on a “solid footing”. The trouble is, the people whose actual job it is to examine the books don’t see it the same way. The NAO today warned of “severe backlogs” in the audits of local authority finances which meant it did not have “sufficient, appropriate evidence” to sign off on the Whole Government Accounts, which combines the figures for more than 10,000 public bodies.
Translated from the restrained jargon of the accountancy profession, the message was simple. The numbers are about as reliable as Rachel Reeves’s CV, and we’re not putting our names to any books with more cooking than the final of Bake Off.
It is perfectly right to do so. In reality, local authorities have liabilities that are almost impossible to quantify right now. Eight councils have declared bankruptcy since 2020, typically as a result of bad investments as local finance offices try to trade their way out of the dire shortage of funds they face. No one really knows how many more might have made investments that are just as risky, or what kind of losses may eventually be racked up.
But the real problem is not just bad investments. They can always be ring-fenced or unwound. It is the soaring cost of a dysfunctional government machine. Local authorities face bills that are running away from them. The idiotic “war on landlords” has driven up rents, vastly increasing the cost of housing people who have nowhere to live. The price of social care for the elderly is rising all the time, and the increase in National Insurance will drive up the costs of homes that will be passed onto councils.
There are an increasing number of illegal asylum seekers – sorry, “irregular migrants” – that have to be looked after. And the courts are imposing backdated equal pay legislation that may land authorities with bills running into tens or hundreds of millions. Add all that up, and it is a surprise that more are not bankrupt already.
The central government is hardly in any better shape. The cost of gold-plated public sector pensions is going up all the time, with estimated liabilities of £1.3 trillion, although the true cost may turn out to be far higher. The outstanding stock of student loans is estimated to come to another £225 billion, and may be virtually worthless as no one has any real idea what percentage of them will ever be repaid.
Six or seven universities may soon go bust, again hit hard by the rise in NI, and will have to be bailed out at huge cost, or else wound down in an orderly manner, which unfortunately won’t be much cheaper. Net zero is turning into a huge drain on resources, with the endless virtual-signalling pledges on climate change racking up liabilities that no one had bothered to property tally up. The list goes on and on.
Asked how he went broke, an Ernest Hemingway character explains. “Gradually. And then suddenly.” The harsh reality is that the UK has been gradually running out of money for the last twenty years. We don’t know precisely how close to running out of money we are. But the NAO decision is a sign that the endgame may well be a lot closer than anyone realises right now. And the “gradually” could turn to “suddenly” any day now.