The government debt and deficit have figured prominently in discussions of the UK economy over the last four years. This is in marked contrast to debate before then, when the focus was on economic growth, inflation, employment and unemployment.
The change of emphasis reflects both the large increase in the previous government’s deficits in its last two years of office and its relatively successful record in terms of economic growth, employment and inflation over the preceding 11 years. But it is not clear that the public fully grasps the economic concepts being discussed. In very simple terms, the government deficit is the difference between receipts and expenditures in a particular time period (usually a year), which deficit (positive or negative) is reflected in net borrowing. The debt is the total amount of outstanding borrowings. These measures are often presented, and most meaningfully discussed, as percentages of GDP rather than in absolute terms. This better reflects the real burdens which they impose and makes them more comparable through time and across countries.
Evidence of a lack of understanding of these concepts was provided in the early autumn by a public poll commissioned by the Centre for Policy Studies and reported in its paper A Distorted Debate: The Need for Clarity on Debt, Deficit and Coalition Aims. When asked to choose between three answers about the coalition government’…