Jeffrey Peel is a business owner and political commentator who divides his time between Belfast and London. He’s also the Editor of www.Citizen2015.com.
TV journalists these days are fond of using props to allow the general public to provide visually interesting ‘content’ for news bulletins. Hence some hapless correspondent is sent wandering around High Wycombe, or wherever, with a giant board, some Velcro and lots of blue-tack.
These props provide the visual aids needed to show just how much (or little) the British public understands about some trending topic, such as the options for a new London runway or public understanding of sugary foods.
But ‘the deficit’ would present a particular challenge for news editors to come up with visual stimulus materials to help us gain insight into the electorate’s understanding. Part of the reason lies with the fact that most people – and many politicians/most journalists – seem incapable of getting their heads round an economic metric that is increasingly reliant on a big, head-frying double negative.
Deficit starts with a negative. It’s the red bit below the balance line. It’s the difference between tax-take and public-spend. Reducing the deficit simply means reducing the shortfall. Therefore a reduction in deficit is a reduction of a negative.
I’d imagine that most members of the British public would have difficulty understanding what a negative reduction is. If they did, they would have no idea what the effect might be on public finances.
In the corporate world, the word ‘deficit’ isn’t used. The preferred private sector word is ‘loss’. Now that would be much easier to represent on a big white board. LOSS. Red could be used liberally. Even kids know that red is bad. Losses are always red. Labour is red.
So if I were to say, “My losses have reduced this year,” people would readily and easily understand that, and while a loss reduction is OK, they’d wonder how I’m managing to keep going if I keep making losses, year after year.
Perhaps my poor wife, they might think, is propping up my business – slipping me some of the slush fund she inherited from her great Aunt. Or they might think that I’m throwing good money after bad. They might think I’m delusional – operating a business in the hope that at some time I might turn a profit that might help reduce all those accumulated losses and debts.
In short, it’s readily understood in the real world that losses and debts are inextricably connected. But that understanding seems missing when discussions of public finances take place. Part of the reason is that the public finance lexicon results in confusion and people have no concept whatsoever of the debt pile – the accumulated public debt. And, I suspect, many politicians have no idea either.
Even Wikipedia has picked up on the problem:
“The UK national debt is often confused (even by politicians) with the Government budget deficit (officially known as the Public Sector Net Cash Requirement (PSNCR)), which is the rate at which the Government borrows money. The Prime Minister David Cameron was reprimanded in February 2013 by the UK Statistics Authority for creating confusion between the two, by stating in a political broadcast that his administration was “paying down Britain’s debts”.”
Now that a new Conservative government has been elected one would have expected some sense of urgency about addressing this problem and highlighting the extent of it to the UK public. As of Q1, 2015, UK government debt amounted to £1.56 trillion, or over 81 per cent of GDP. The cost of servicing this debt is around £43bn. The proposed savings from further benefits cuts is £12bn.
Achieving benefits cuts to this extent may require a scrapping of care allowances and further cuts to child benefits. In short, not exactly popular even in the Tory shires.
Meanwhile the Republic of Ireland, this year, is likely to run a fiscal surplus. This was achieved through a wholesale public sector shrinking policy – reducing tax and slashing the public sector wages bill. And, of course, Ireland kept corporation tax at rates that make it the default foreign direct investment location in Europe.
The result is that Ireland is both a small tax and small government country. It swallowed a bitter pill, but Ireland will be the better for it.
It’s about time that the word ‘deficit’ made way for new concepts that the British public would readily understand: crippling debt and the means of reducing it.
Under the coalition government the attempts to make serious attempts to reduce the extent of public debt seemed half-hearted. Moreover the default approach to doing so tended to start and stop with ring-fenced arguments (especially around foreign aid spending and NHS budget protection).
The discussion never seemed to focus on significant reductions in public sector pay or wholesale reviews of what government departments should be doing and why they should be doing them.
The British public, in my view, wants to see that the government and the civil service have skin in the game. A Conservative government was elected because many accept the need for smaller government. But there are more ways to shrink government than by cutting welfare.