Clash of the manifestos: Debt and Deficit

Published: 4th May 2015

"Five years ago, the budget deficit was more than 10 per cent of GDP, the highest in our peacetime history […] today, the deficit is half that level and debt as a share of national income will start falling this financial year"—Conservative manifesto

"In the last five years, we have worked hard to bring balance back to Britain's public finances. The deficit is now half what it was in 2010"—Liberal Democrat manifesto

"The Conservative-led Government promised to balance the books in this Parliament. But this promise has been broken. The Conservatives will leave the country borrowing over £75 billion this year"—Labour manifesto

Five years ago, the budget deficit stood at 10.2% of GDP. The Office for Budget Responsibility (OBR) has data stretching back to 1948, and this was the highest the deficit has been in this period. It was also the highest in cash terms at about £154 billion, and the highest when adjusted for inflation.

Since that point, the deficit has been reduced. In 2014/15 it was estimated at 5% of GDP, and it's forecast to fall further to 4% of GDP this year.

In cash terms, the deficit was estimated at £87 billion last year (down 43% from 2010), and it's forecast to fall to about £75 billion this year.

The Conservatives say that debt (as a proportion of GDP) is expected to start falling this financial year. It is, but there's a caveat to this success.

The government has decided to sell £20 billion worth of assets in 2015/16, including some shares in Lloyds Banking Group.
As the Institute for Fiscal Studies has pointed out, this is "not a genuine reduction in government indebtedness". Selling these assets just brings forward income that would have been received in the future.

In 2016/17, debt as a proportion of GDP is expected to fall without any additional asset sales, according to the OBR's projections.

Did the government fail on its promise to balance the books?

The Conservative manifesto in 2010 said that the party would "set out a credible plan for eliminating the bulk of the structural current budget deficit over a Parliament". This measure of the deficit looks at borrowing that isn't caused by new investment or the business cycle; it's not a measure of total borrowing.

The June Budget 2010 contained plans and forecasts that indicated that the structural current deficit would "be in surplus" by 2014/15, and press coverage at the time showed Downing Street pledging to "take responsibility for balancing Britain's books within five years".

The Institute for Fiscal Studies says that from 2010/11 to 2014/15 the government borrowed approximately £100 billion more than it planned to at the start of this parliament.

This wasn't because the Coalition failed to cut spending. The economy hasn't performed as well as it hoped, and the government has raised less tax revenue than it expected to.


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