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A Distorted Debate: the need for clarity on Debt, Deficit and Coalition Aims

The Coalition came into office in 2010 with the stated aim that it would eliminate the current structural deficit by the end of this Parliament and stem the increase in public debt as a proportion of GDP.

In A Distorted Debate: the need for clarity on Debt, Deficit and Coalition Aims Ryan Bourne and Tim Knox demonstrate that it now looks most unlikely that the Coalition will achieve either of these aims. Though the deficit has fallen by around a quarter since 2010, the cyclically-adjusted current deficit (the part the Coalition said it wanted to eliminate within five years), had only fallen by 13% by the end of 2011/12. The great majority of the reduction in the deficit has come from cuts to investment spending and tax increases, not from current spending cuts (the authors show that only 6% of the planned current spending contraction has so far been implemented).

The official national debt is also forecast to rise by £605 billion (in nominal terms) over the course of this Parliament, or from 53% of GDP in 2009/10 to 76% of GDP in 2014/15. This week’s growth and borrowing figures make it all the less likely that debt will be on a downward path until the next Parliament, meaning the Coalition’s hard mandate will not be met on unchanged policy.

Public confusion on debt and deficit has not been helped, either by politicians or by leading journalists, who have both at times suggested the Coalition is reducing the national debt. The authors cite numerous examples of how both the national media and politicians have repeatedly confused “debt” and “deficit” (see pages 5 to 7).

Separate polling questions also show there is confusion over what the Coalition has achieved so far. Only 39% of the public correctly identify that the budget deficit has been reduced since 2010, compared with 28% who believe this to be untrue.

Widespread failure to understand the true nature of the UK’s economic predicament matters for two reasons:

  1. The Coalition parties will be vulnerable at the next General Election when opposition parties could argue that the huge (and to many of the public, totally unexpected) increase in debt is primarily the result of economic incompetence;
  2. Ignorance of the scale of the fiscal predicament makes it difficult to win public support for the policies which are both necessary and desirable to deal with the crisis.

Ryan Bourne commented:

“The polling results show two things: that the public is unclear about what the Coalition’s ambitions are, and is unclear about what the Coalition has achieved in terms of the public finances since 2010. Despite what many people think, it was never the Coalition’s ambition to reduce the national debt within this Parliament. What’s more, it’s becoming increasingly probable that, on current policy, neither of the Coalition’s original fiscal mandates are going to met. With the recent dreadful borrowing figures, now would be a good time for the Coalition to restate the scale of our fiscal problems, and to set out how they will be addressed. Only by having a clear knowledge of the problems and solutions on offer from the different parties will the electorate be able to make an informed choice in 2015.”

The full polling results can be downloaded from here.  

 

Media Impact:

 

Broadcast mentions

Sky News, Sky News Sunrise, BBC Radio 4, BBC Radio Merseyside, Downtown Radio (NI). 

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