Fraser Nelson over at The Spectator makes an excellent point in this blog.
Cutting the deficit in half - as Alistair Darling aims to do by 2013/14 - sounds like a pretty drastic business. And sure, it won't be easy. But what's far more depressing is that cutting the deficit is not the same as cutting our overall debt. In fact, our overall debt will still be growing.
The annual deficit is just the difference between the government's income and its outgoings for the current year. So in other words, even if the deficit is cut in half, we will still be spending way more than we earn. We'll have merely cut the rate at which we're over-spending.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
As Nelson suggests, calling the deficit the 'overspend' would be a much simpler way to do it. But then, that would make the government finances that bit more transparent, and we can't have that.
And don't think that all of this is just down to the recession, by the way. Spending more than you earn isn't always a bad thing, particularly if, like a country, your income tends to fluctuate with the business cycle. But Britain has a massive 'structural' deficit. In other words, we've been used to spending more than we earn, even when times are good.
That's one big reason why we're in this mess, as my colleague Merryn Somerset Webb pointed out recently. And it's one reason why, whatever happens next, "a long and painful fiscal squeeze lies ahead" for the UK, as Jonathan Lloynes of Capital Economics puts it.
-
Christmas at Chatsworth: review of The Cavendish Hotel at BaslowMoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
