What makes up the national debt? It’s a good question, precisely because there is no obvious answer

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I have been looking at the thorny issue of what makes up the public sector net debt, excluding public sector banks, that was announced last week to amount to £2,004 billion (£2.004 trillion). To do so I have used the mass of spreadsheet data published by the Office for National Statistics with that release, all of which spreadsheets are deeply frustrating because they have all the formulas removed from them before publication, which makes no sense at all.

Having undertaken this exercise I believe that the figure for debt is officially made up as follows:

To the point where debt is £1,809 billion, this makes sense, or at least I can guess the origin of most of it, albeit that it would be good to know what 'other sterling debt and foreign currency debt' really was, and what the liquid assets were would also be good to know. But there is a number I am truly baffled by, and that is the Bank of England c0ntribution to this debt.

The ONS said that in February 2020, when the Bank of England last issued accounts, that the Bank of England contribution to Public Sector Net Debt was subject to three issues that they noted:

The figure that they suggested the sum came to in February this year was not insignificant, at £174.1 billion. So I have tried to track the number down as at that moment because the ONS says it is based on the Bank of England accounts, which are available for that date,  and the ONS's own estimates.

The Bank of England balance sheet reads like this in February 2020:

As will be noted, assets and liabilities are remarkable evenly matched: there are net assets of £5.8 billion. So to find liabilities of £174.1 billion looks to be hard work.

Thankfully, some is easily found. That's because, bizarrely, the Band of England does not publish one set of accounts for its activities, but three. Those for the Prudential Regulatory Authority can, however, be ignored: they are utterly immaterial to this issue. But those of the currency-issuing department are not. This is their balance sheet on that same date:

I think that locates £74.4 billion of liability: it is currency in issue. There is just £99.7 billion to find then. And since we are looking for liabilities only notes 11 and 12 should hide such a sum. These are the notes in question:

The deposits held on demand are clearly not what is being looked for: because of the relative size of them and the number being looked for it seems very unlikely that they are what makes up this figure.

I think we can also ignore the £66,552 owing by the issues department: it is an intra-group balance that should be cancelled on consolidation. That is confirmed by Note 4 to the Issues Department accounts.

So, we are left with a hotchpotch. The effective impact of the Asset Purchase Facility is in the loan to it, amounting at this date to £445 billion. But this is an asset. Of course, that asset helped create the central bank reserves of £479.4 billion. But why are they offset, if they are? Is it now acknowledged that the objective of QE failed and it just produced cash and not new investment? That is what the offset, if it is made, would imply.  And yet, it seems that they must be, because otherwise those reserves are not reflected in debt and yet it is said by the ONS that the Asset Purchase Facility that is related to both does have an impact.  In that case, then, does note 8 also come into play? This says:

However, I stress, once more, that this is an asset. So what this has to do with debt is hard to tell, and that would also seem to leave the ONS note as deeply confusing, at best.

I have then some simple questions to ask in that case:

  1. What makes up other sterling debt and foreign currency debt?
  2. What are the government's liquid assets and where are they held and how does this sum interact with the Bank of England?
  3. How is the Bank of England contribution calculated and how does it relate to the Bank's published accounts?

I genuinely have no clue as to the answers to these questions and the ONS data on the national debt does not answer them, and nor does my attempt to link the data to published source documentation do so. I have made Freedom of Inf0ormation requests to try to find out.

I have already made the point, time and again, that the above logic, which ignores debt subject to quantitative easing is wrong. It is not credible to ignore QE simply because it is deemed that the Bank of England subsidiary company that owns this debt is considered to be outside the government sector by the Office for National Statistics when that company is wholly owned and controlled by HM Treasury, for whom  it acts as an agent, making a mockery of what the ONS assert, but I now have another concern.

In my opinion, if the Office for National Statistics is going to issue data that it knows will grab headlines - and it clearly and knowingly did that last week - then it has a duty to also put out an unambiguous explanation as to where its data comes from, and to show how it can be reconciled to it, if appropriate.

Try as I might I cannot explain the national debt based on the figures they published, and I am a fairly informed reader of accounts and statistics. There is, then, a problem. And given the significance of this issue this needs to be resolved. Too much hangs on this number for it to be made of data of unknown origin and credibility.