150113 Defict comparison
  • Haven’t we been here before? Why, yes. This is, to some extent, a distilled version of two of my recent posts – this one and this one. But the question of whether the Coalition has halved the deficit, or only cut it by a third, has recently loomed so large that I thought it would be worth cutting down to a manageable size. That, after all, is the purpose of ConHome’s new To The Point series.
  • Who says what? Just look the graph above, which shows public sector net borrowing in two ways: as a proportion of GDP (the blue bars) and as a cash sum (the pink bars). The Tory leadership have been pointing to the former, which goes from 10.2 per cent in 2009-10 to 5.0 per cent in 2014-15, as proof that they’ve halved the deficit. Others, led by The Spectator’s Fraser Nelson, say that it’s misleading to measure the deficit in anything other than money. In which case, it has gone down by closer to a third, from £153 billion to £91 billion.
  • So who’s right? In a way, both and neither. Ideally, for clarity’s sake, politicians would append “as a proportion of GDP” on to their claims about the deficit. But it’s also true that economists tend to prefer the GDP measure – not least because it better captures a country’s ability to pay off its borrowings – and often express it, in shorthand, as just “the deficit”. The Coalition isn’t lying when it does likewise.
  • Welcome to the crazy world of the public finances. What all this really demonstrates is the confusing and confused nature of the deficit numbers. Not only have the official measures been revised numerous times during this Parliament. Not only does the Coalition sometimes say “deficit” when it means “deficit as a proportion of GDP” or even “structural deficit”. But also the three main parties are heading into the election targeting three different versions of the deficit: public sector net borrowing, the deficit on the current budget, and the deficit on the cyclically-adjusted current budget. Urgh.
  • The question is… Should politicians be concentrating on such a weird, unknowable number, when they might do better to simply look at spending?