Deficit & Debt

Deficit

In simple terms a deficit is the difference between the money a government collects (mainly taxation) and the amount it spends, as per its budget. If this is a positive amount then it would be a budget surplus and not a budget deficit. When a government operates a budget deficit, it usually has to borrow money (from somewhere) to make up the deficit.

The diagram below shows the UK budget and deficit borrowing (£billions) since 1979 when Geoffrey Howe was Chancellor. Since 1979 we have only had 6 years of budget surplus, which suggests that our chancellors have not been very good at budgeting. Of those 6 years, four were under Gordon Brown, who squandered the surplus and went on a mad spending binge.

Typically the money to make up the deficit is lent from the International Monetary Fund (IMF) and must be paid back with interest. The accumulation of this borrowed money constitutes a portion of the national debt, referred to as government debt or public debt, and this is only a portion of the total debt. As shown above the budget deficit for 2012 was £99.5 billion, which is the amount the UK needed to borrow in 2012 to balance its budget. Despite the media and opposition criticism of Coalition policies, it can be seen that the deficit is at least being reduced, although we do not endorse or support the government’s current monetary and fiscal policies, it certainly seems a better policy than Labours reckless spending policies. Although of course uncontrolled spending has the effect of creating the appearance of abundance and a wealth of public services, which makes you very popular.
By 2015 the deficit has been halved, and the Conservatives are promised to reduce it to zero by 2020 when they were elected in May 2015. That will just leave the national debt to be resolved!

The table below shows the UKs budget for 2015/16

As can be clearly seen, to balance the spending plans of the government, they borrowed a total of £75 billion pounds (deficit), just for 2015, and at interest. Even scarier on the spending side is a total of £35 billion on debt interest (down from £51 billion in 2013), which is the interest payable on pre-existing debt, so we effectively borrowed £75 billion to enable us to pay back £35 billion in interest on previous debt, whilst increasing the debt interest payable further. So debts only get larger, but not to worry, we’ll just borrow more to pay the debt. Also, notice significantly, there is no amount on the spending side paying off the principal of pre-existing debt, none at all.

We should insist that our government not run a deficit, the default suituation should be a surplus, and under exceptional cases a break-even. Under no circumstances should a deficit be allowed or tolerated, and a government should be forced to call a general election if it cannot operate a balanced budget into surplus. Under extremely exceptional circumstances a government may be able to seek permission to run a deficit, following a national referendum, the terms and duration must be set out and adhered to. Emergency funding to defend the realm or avoid or recover from natural disaster may be allowed, with permission granted retrospectively.

Bailouts of any kind should be banned, and any subsidies should be granted with permission from the electorate.

If we have no deficits we should have no debt.

Budget 2018 below

To get an understanding of where our individual tax contribution go per expenditure, see the graphic below (2014-2014):

Debt

A nation’s debt is its accumulation of deficits, but is only really a portion of the total indebtedness of a nation.

The national debt of the UK currently stands at around £1.5 trillion (over $2 trillion). This means that each person in the UK owes around £23,000 towards the national debt, which is £51,330 for every person in employment, and just under £1,900 this year (2015) to cover the interest owed.

This is merely the headline figure, the amount publicly admitted via the mainstream media (MSM). This figure does not include the bank bailouts amounting to around £800 billion, making this figure just over £2.3 trillion.

In addition we should factor in outstanding personal debt, on such things as mortgages, loans and credit cards; this comes to a staggering £1.4 trillion.

Additionally Britain has an unfunded state pension liability of £1.4 trillion, and unfunded public sector pension liabilities of £1.2 trillion.

Already that comes to a jaw-dropping £6.3 trillion debt, which based on a GDP of £2 trillion, amounts to a debt of 315% of GDP, or over three times our GDP. But even that is not the complete picture of the level of indebtedness in the UK; this does not include private sector debt:

• Combined, non-banking Corporate debt is currently £1.5 trillion

• Financial sector debt is £3 trillion

So add that in and we are looking at a figure of around £10.8 trillion in total UK debt, which is more than five times (500%), our current GDP, this is known as our External debt to GDP ratio. This is extremely serious. Weimar Germany in the 1930′s during its hyperinflation days had a debt-to-gdp ratio of around 900%; we are not far from that figure. RoI (Ireland) has an external debt to GDP ratio of over 1000%.

In 2012 Britain borrowed £120.6 billion, which is £120,600,000,000. What does this mean in simple terms?

This means just over £3,805 ($6,088) per second (by way of comparison US debt increases by $52,162 per second), or

£228,310 ($365,296) per minute, or

£13,698,630 ($21,916,808) per hour, or

£328,767,123 ($526,027,397) almost 329 million PER DAY, to balance the national budget and fund government including the debt repayment on what we have borrowed previously.

But the good news is, it is down from the previous year’s £120.7 billion, so for all the cuts and austerity measures we have borrowed £100 million pounds less, or just less than 8 hours’ worth based on the figures above.

So if the government announce they are making a saving of say £1 billion that is just over 3 days’ worth.