Hot on the heels of yesterday's guest appearance on these pages from economist John Hearn comes another look at balancing the books by no less a luminary than long-time regular reader Lilac, with the promise of more to come later.
So, without further ado, here she is in typically glib, witty and informed mood with her piece subtitled " Or more aptly of budgies and beasts"
"It's 30 years since the UK government last ran a balanced budget," according to Douglas Carswell, an erstwhile Tory radical, recently elected UKIP MP for Clacton.
His assertion late last year had me going for a while. It had me wondering what, in fact, is the real meaning of a balanced budget. By definition, it refers to a budget in which revenue is equal to expenditure, whereby neither a deficit nor a surplus exists - more generally though, it refers to a budget that has no deficit, but could possibly have a surplus. There!
Wearing my pedant hat then (and I do like floppy hats) I would argue that the only way to achieve a balanced budget is to aim for one with a net surplus. It's what we mere mortals should be aspiring to with our personal finances on a daily basis -- and it's the only solid way for business to thrive. Isn't it?
I came across an article written a couple of
years ago by a certain Duncan Weldon, a rather illustrious chappie, currently
economics editor of BBC's Newsnight, extolling the virtues of debt dynamics and propounding the theory that
deficits are compatible with a falling debt/GDP ratio.
For example, governments didn’t run a surplus from the early 70s to the late 80s, and yet the debt to GDP ratio fell from 60% to 36.6% over the same period. In only 18 of the 63 years charted was there a budget surplus. PSNB averages a deficit of 2.4% of GDP over the whole period. Even excluding 1973-76, 1979-83, 1990-1993 and the period from 2008 onwards (periods when GDP was below its previous peak) the average deficit is still 1.5% of GDP.
In other words, he maintains, running a deficit is the norm.
“In reality, getting debt/GDP down is not just about running surpluses (as demonstrated by the UK’s post-war experience) but is governed by a combination of interest rates, inflation, GDP growth and the primary budget balance (i.e. before interest rates).”
Far more interesting for me though, is that it’s plain to see that PSND had started on a downward trajectory just as the Tories were voted out of office in 1997, with Gordon Brown carrying through the monetary policies put in place by his predecessor, Ken " Big Beast" Clarke (whose successful tenure was such that Brown felt he had to pledge to stick to Clarke's spending plans, and these limits remained in place for the first couple of years of the Labour government.) Following the subsequent election, and presiding over one doozy of a surplus, the rest is history.
Back to Carswell -- in any event I’ve come to the conclusion, having given him the benefit of the doubt, that he didn’t bother to check what was written, likely having dictated the word ‘thirteen’. But 30 years of fiscal malfeasance resonates far more emotively for any of the unsuspecting electorate to swallow, and no editor sought to correct it.
Since 2001 then, UK governments have piled borrowing upon borrowing -- with public debt doubling over the past four years -- and the Coalition incurring £100 billion this year alone.
I’m going to leave this here for now, while I gather a few cogent thoughts on what probably lies in store for us in Wednesday’s budget – and that which probably won’t. But not before I wish everyone an exceedingly good St Pádraig’s Day (Would you believe me if I told you it took a lot of willpower to suppress a hail glorious Daniel O’Donnell urge? lol)
