Forget the UK’s ‘deficit’, worry about the ‘overspend’

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.

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.