AIBU to ask if there are any economics people here prepared to explain borrowing and deficit?

[beardymcbeardy]

Im trying to get my head around it. Can someone explain in basic terms? My very basic understanding is likening it to my overdraft. The UK has an income. We dont bring in enough income to cover all outgoings. So we are borrowing. But according to the facts we have tripled out borrowings over the last 7 years. Whilst cutting down on essentials to make sure we can make the interest payments. Can I ask where all the borrowing went if we were cutting back on the nhs/police/welfare etc?

[zaalitje]

The income had dropped, things like corporation tax cuts, so borrowing needs to increase and spending decrease.

[Justanothernameonthepage]

Not to mention the fact that the government has made some investments that won't show profit for a while (if ever) they manage to cushion the impact on the books but also selling profit making investments, but that in turn means income drops overall.

[Domino20]

www.economicshelp.org/blog/334/uk-economy/uk-national-debt/

[dangermouseisace]

Taxes have been cut, and wages growth has been slow. So tax receipts haven't been what they should have. Also, people have had less money to spend- again, lower tax receipts. The govt also made unwise cut/spending decisions…the move to universal credit cost a bomb, cuts to housing benefit/the bedroom tax have led to people using massively more expensive emergency housing, the population is getting older and therefore more needs to be spent on them.

For the bigger players, tax avoidance is rife, and British corporation tax is one of the lowest in the world. If the govt dealt with that, then maybe the deficit would be less. However, the Tories are the party of big business, and would rather the masses suffered than big business/the wealthy paid a fair share.

[beardymcbeardy]

Why have the Tories managed to claim the title of being the party to sort out the economy then if they are hindering income, and borrowing record high amounts whilst cutting everything to the bone. (Disclaimer: i am a floating voter but prob not Tory, but cant understand how Tory have managed to get away with this. Had Labour done this they would be hung drawn and quartered for it).

[UnderslungBowlingBall]

I'd say this is more a matter for politics people but basically we're spending more than we're getting in tax, therefore there is a budget deficit which we're financing with borrowing. Beyond that, I couldnt where the money's going.

[SisyphusDad]

Surplus / Deficit: The difference, in any given year, between what the Government receives in income and what it spends. When expense is greater than income then the difference ("a deficit") has to be be borrowed and added to the National Debt.

Hence the National Debt will continue to increase until the Government receives more in income than it spends even though the deficit is reducing year on year.

If the Tories had not 'cut everything to the bone' and / or taken significantly more in tax revenue then the deficit would have been larger and the National Debt would have increased that much faster.

That the Tories are borrowing more than ever before is technically correct but utterly misleading. Before they can even start to stop the debt increasing automatically they need to convert an annual budget deficit into an annual budget surplus.

[pringlecat]

Basically, we have a whopping big loan outstanding. It goes up each year because we can't afford to pay off the capital part of the loan.

The amount by which it goes up every year has decreased under the Tories. So whilst we're screwed, we're less screwed than we could have been.

As for taxes, they are used to influence spending. Corporation tax goes down... the aim is to encourage more businesses to come to the UK. If existing companies in the UK pay less CT but lots of new companies who weren't here before and not paying CT before start paying CT, overall, quids in.

Giving an allowance for a tiny bit of employer's NI? Designed to encourage one-man bands to hire a second person for cheap and thus create another job, thus getting someone off jobseekers (whether it's that second person directly, or say, the person who takes the job that the second person leaves in favour of this new job).

Now, tax policies don't always have the impact that they're meant to. But the intention is there.

This is one of the reasons why I remain pissed off that tampons are not zero-rated and thus apparently not treated as an essential item of expenditure. I don't care if the VAT from tampons is ring-fenced for women's charities; there are some women who need tampons who could do with the tax break at source. There's using tax to manipulate public spending for the greater good and there's bloody well interfering too damn much. No VAT on sanitary products, that's what I say.

[HornyTortoise]

Something I have always wondered...who is all this money 'owed' to? Given it seems every country has debt? Are they all in debt to each other, or do a few countries actually not have debt, or what?!

[beardymcbeardy]

If the Tories had not 'cut everything to the bone' and / or taken significantly more in tax revenue then the deficit would have been larger and the National Debt would have increased that much faster. This then obviously begs the question, how did Labour manage it without borrowing then? Or they didnt, the deficit just got bigger? Is it a bit like a planned overdraft (borrowing) vs unplanned overdraft (deficit just gets bigger) to pay the bills? Does anyone know what the Tories have borrowed since they were in power vs what the deficit was under Labour (how much labour spent without borrowing to cover cost - is this right?)

[SisyphusDad]

The short answer is that the post - 2008 recession caused a massive increase in the deficit and therefore the debt. I got the following from a website called www.ukpublicspending.co.uk/uk_national_debt_analysis?show=n. It's got lots of graphs and statistics if you want the detail. They show that the deficit increased from £20bn in 2005 to over £100bn in 2010 under Labour and has been decreasing ever since.

Deficit :
In 2005 the UK “current budget deficit” was less that £20 billion. But then came the worldwide financial crisis of 2008 and subsequent recession. The budget deficit skyrocketed to £50 billion in 2009 and £103 billion in 2010. In the subsequent recovery the deficit has slowly declined, reaching £15 billion in 2017.
In terms of Gross Domestic Product the UK “current budget deficit” in 2005 was less than 2 percent of GDP, and declined to about 0.6 percent GDP in 2007 and 2008. In the Great Recession the deficit ballooned, to 6.9 percent of GDP in 2010. Since then the deficit has steadily declined, to less than one percent GDP in 2017.

Debt:
Public Debt in the United Kingdom is principally the debt of the central government.
In 2005 the UK National Debt was less that £0.5 trillion. But then came the worldwide financial crisis of 2008 and subsequent recession. The National Debt increased rapidly and went over £1 trillion in 2011. At the end of the 2015-16 fiscal year, the National Debt went over £1.5 trillion.
In terms of Gross Domestic Product the UK National Debt in 2005 was about 38 percent of GDP.
But in the last ten years, in the wake of the Crash of 2008 and subsequent recession, the National has doubled to over 80 percent GDP, but shows signs of leveling out as a percent of GDP.

As to who owns it, bizarrely the Government itself owns about 30%, bought through Quantitative Easing after the 2008 crash. Overseas investors own another 30% or so and the remaining 40% is owned by UK pension funds and investment funds.