via the Telegraph:
By Andrew Porter and Edmund ConwayLast Updated: 3:05am GMT 08/02/2008
Gordon Brown’s reputation for economic competence has been dealt a severe blow as £100 billion of taxpayers’ money used to shore up Northern Rock was added to the national debt.
The Treasury has broken one of its jealously guarded borrowing rules after the National Statistician ordered Alistair Darling, the Chancellor, to put the stricken bank’s liabilities on the Government’s books.
The total amount of public money involved in rescuing Northern Rock is the equivalent of saddling every family in Britain with £3,000 of debt.
It means the national debt will rise as high as 45 per cent of gross domestic product, well above the limit set by Mr Brown in his sustainable investment rule when he was Chancellor.
The Conservatives said Labour’s claim to economic competence had been “blown to pieces”.
George Osborne, the shadow chancellor, said: “Gordon Brown has staked his reputation for competence on meeting his own fiscal rules. Those rules have been blown to pieces as a result of his economic incompetence. Gordon Brown has effectively saddled every taxpayer with a second mortgage as a result of his mishandling of the Northern Rock crisis.”
The Office for National Statistics (ONS) said it was classifying Northern Rock as a public corporation, giving it the same status in the National Accounts as the Royal Mail and the BBC.
The ONS emphasised that its decision did not mean that it regarded the Rock as nationalised. But the move is based on the judgment that the public sector has ultimate control over the company, even though it remains nominally owned by shareholders.
The ONS said it will not be able to include a definitive figure for the debt in the National Accounts until after next month’s Budget, since it will take time to calculate it properly and Northern Rock has not released its recent accounts.
Significantly, the decision will be backdated to Oct 9, 2007, meaning the Government has fallen foul of its borrowing rule for some months. It is the first time the Government has broken the rule since its introduction a decade ago.
Financial analysts said the move would not mean the Government would have to raise taxes or cut public spending but it was a damaging blow to the Prime Minister.
Before the Northern Rock debts were added, the national debt stood at £537 billion, or 37.7 per cent of gross domestic product.
Taking the figure to around 45 per cent catapults Britain up the league table of indebted nations, above the United States and just below Germany, traditionally regarded as one of the highest spending countries in Europe.
Honestly, this is impressive, to me. This shows that British institutions are capable of honesty following a monumental blunder. I’m sure it’s more due to the growing array of bureaucratic and political forces arrayed against Gordon Brown than any crisis of conscience on anybody’s part, but it still amounts to a society which can face up to the real debts on its books.
If the United States exercised equivalent rules, Countrywide, Citigroup, and probably Merrill Lynch among many others would all be classified as nationalized. And for all practical purposes they have been; but US institutions have proven themselves incapable of that kind of introspective self-criticism.