£100 billion of the UK’s extra debt relates to the Bank of England’s “Asset Purchase Facility,” writes Portes. Photo: NurPhoto/SIPA USA/PA Images

“Conservatives believe in balancing the books and paying down debts—because it is wrong to pass to future generations a bill you cannot or will not pay yourself.” That’s what the Conservative manifesto said. And it is true that the deficit has been reduced very significantly since its post-crisis peak—down from about £150 billion in 2009-10 to less than £50 billion last year. So, although we’re still a long way from “paying down” the national debt, at least we’re not adding to it at nearly the same rate?

Not so fast. In fact, over the last year, the national debt—public sector net debt, excluding public sector banks, (“PSND ex”), which is both the ONS headline measure and the one officially targeted by the government—increased by nearly £144 billion. In other words, it’s going up almost as fast as it was when the deficit was three times as high.

How come? The answer is very technical—£100 billion or so of the extra debt relates to the Bank of England’s Asset Purchase Facility. Briefly, the BoE makes loans to banks and buys corporate bonds, in return for cash (“central bank reserves”). The latter are a financial liability of the BoE, so public sector debt, as measured, increases. Of course, the BoE now has assets to match these liabilities—it’s not actually “spending” the money, and there is no impact on the deficit. But since these assets are not liquid (that is, easy to turn into money and spend), they do not offset in the official measure of PSND (which follows international guidelines).

So, in economic terms, the un…

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