The deficit and debt in pictures

I’ve blogged before about the national debt and the deficit (here and here) and mainly this has involved throwing around a lot of numbers and percentages. For those readers who are less number inclined, the Adam Smith Institute has produced a fantastic graph which covers from 2000 to the present and I’ve reproduced it  below.

- Tax revenues as percentage of GDP are blue
- Public spending as percentage of GDP is red
- Public sector debt as percentage of GDP is purple
- The deficit as a percentage of GDP is green.

It shows two important points, the first is in 2001, when just after their second election victory it seems that the Labour party felt they had a mandate to apply their spend spend spend ideology and spending started to outstrip tax revenues (where the red and blue lines diverge). At this point the deficit sat around 4%. Don’t forget back then, the word recession was something from the past and no one had ever heard of a sub-prime loan or expected to have to bail out banks.

The second point is when the credit crunch and banking crisis hit properly and you see everything sky rocket, well except tax revenues which dipped, but don’t forget all of this is as a percentage of GDp so as that dipped too the actual tax receipts fell faster than the slope of the  line suggests whilst spending and  debt increased faster.

One interesting point that the Adam Smith Institute points out is that tax receipts have remained pretty steady at around 34% of GDP regardless of the situation (and interestingly despite increasing tax takes, changes in NI, the 10p tax band abolition etc) so that’s what a new incoming government should be aiming at. It won’t be easy though as at the moment public spending sits at around 48% of GDP, so we need a change of 14 percentage points.

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Structural makes up 75% of national debt

Following on from an earlier post back in December on structural debt versus cyclical debt and the PBR’s approach to tackling it (Government debt £300bn and counting), it appears that the structural debt actually accounts for something like 75% of the national debt. What this means is that even without a global recession our national debt would still be something like £225 billion.

This came out today when Shadow Chief Secretary Phillip Hammond opened for the opposition during the Commons debate on the Pre-Budget Report and quoted Treasuary figures.

“According to the Treasury’s figures, the economic recession accounts for about a quarter of Britain’s deficit—that is the cyclical part of the deficit, which economic recovery will eventually eliminate—but three quarters of it is structural, and requires a structural response.”

He has also pointed out that the government's continued reasoning for our debt level as being bailing out the banks isn’t true.

“The real structural crisis that needs to be addressed is not caused by the Government’s support for the banking system, as they like to imply. In fact, none of this year’s £178 billion deficit is directly attributable to support provided for the banks.”

As I wrote previously the PBR’s response in trying to stimulate the economy alone, and failing to cut expenditure seriously suggests that the government believes that there is no structural issue at play which at the end of the day is just plain wrong.

Orriginal story from ConservativeHome

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