A new study concludes that Britain's underlying public finances are among the worst in the world, standing behind the Gambia, Uganda, and Kenya. Economists at the International Monetary Fund (IMF) revealed that £1 trillion had been wiped off UK public sector net wealth since the 2008 financial crisis, largely due to bank bailouts and increasing pension liabilities. The institution looked at the assets and liabilities of 31 countries and found the UK was in a worse position than every other country apart from Portugal.
The IMF's approach takes into account the benefit of assets such as publicly owned corporations and natural resources, rather than looking at each country's debt and the deficit. The figures more closely resemble a company's balance sheet. The IMF said the cost of bailing out banks had been a significant factor dragging the UK down the rankings. The UK also has one of the largest pension liabilities of any nation in the study but is towards the bottom of the pile when it comes to public assets.
Using the public sector balance sheet method, countries such as Gambia, Uganda and Kenya rank above the UK because, while they have smaller assets and liabilities than Britain, they have a higher net wealth relative to GDP. The report takes particular aim at the privatisation of public assets, the benefits of which it says are often merely an “illusion”. The UK has undergone one of the most drastic privatisations of any economy since the early 1980s.
Economists said the tendency of governments to focus on debt “misses large swaths of government activity and can fall victim to illusory fiscal practices.” The report said, “For instance, privatisations increase revenue and lower deficits but also reduce the government's asset holdings. Similarly, cutting back maintenance expenditure reduces the deficit and lowers debt, but also reduces the value of infrastructure assets, which could cost more in the long term.”