Saturday, January 03, 2015
Has the budget deficit halved?
Posted by David Smith at 11:30 AM
Category: Thoughts and responses

A minor row has broken out over Conservative claims that the budget deficit has halved under the coalition.

Most economists would say that it has. Public sector net borrowing this year will be 5% of GDP according to the Office for Budget Responsibility, down from 10.2% in 2009-10, the last year of the previous government.

Non-economists would say that it has not, because this year's projected deficit, 91 billion, is down by only 41% on its 2009-10 peak of 153 billion. It should have halved by next year, 2015-16, but has not done so yet.

Deficit definitions matter, however. The new definition of public sector net borrowing excluding banks, introduced a few months ago by the Office for National Statistics, included important changes. On the old measure, public sector net borrowing excluding financial interventions, the deficit did virtually halve, from 157.3 billion in 2009-10 to 80.7 billion in 2012-13, though the figures were heavily distorted by special factors.

One problem is that there is no generally accepted definition of the deficit and all suffer from significant imperfections. The OBR lists five, and there are others.

So the primary deficit, one measure, has halved in cash terms, from 131.9 billion in 2009-10 to 66.3 billion in 2013-14, with a projected deficit of 60.4 billion this year.

In the 1980s, the then Conservative government targeted the public sector borrowing requirement (PSBR), now renamed the public sector net cash requirement (PSNCR). More than most measures, it is subject to significant distortions, but on the ex banks measure it has come down from 198.8 billion in 2009-10, to 63.8 billion in 2013-14. The latest figures are here.