Lyddon Consulting has just issued a paper about the £200 billion deduction that the Office for National Statistics (ONS) makes to the national debt on account of ‘Bank of England’.

You can download the full paper here.

The ONS deduction reduces its initial measure of the national debt – ‘Public sector net debt’ – from nearly 98% of the UK’s Gross Domestic Product (GDP) to just over 90%, as per October 2024 figures.

The deduction is unjustified.

It is also dangerous, in that the making of a deduction and its size normalise the routine understating of the nation’s indebtedness.

It acts as a stepping stone to Labour’s introduction of a new measure of the national debt –  ‘Public sector net liabilities’ – which is a further 5.6% of GDP lower even than ‘Public sector net debt excluding Bank of England’.

Each step down enables and legitimises the next step down.

In reality an amount should be added back on to ‘Public sector net debt’ for ‘Bank of England’, not deducted. The Bank of England is sitting on losses of between £160 billion and £195 billion which, if they materialised, would add those amounts to the national debt.

Furthermore it owes about £725 billion to banks and building societies and about £90 billion on the nation’s banknotes.

The ONS should first be producing a statement of ‘Public sector gross debt’, which would include all of the Bank of England’s debts, and legitimizing each deduction from that down to ‘Public sector net debt’, before any further creative accounting is permitted.

Such creative accounting leads only to one place: the invention of illusory headroom for further borrowing.