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Deficit Debt


I've been meaning for some time to rant about how commentators, and particularly politicians, confuse the national debt with the deficit, treating "deficit" as a synonym for "debt".

David Cameron was guilty of doing this only recently and then today someone on Facebook posted a scan of this letter from Michael Meacher MP and I thought it was time.

Let's begin with the basics in case you've been living under a rock for the last few years and haven't paused to find out what the deficit is that the Tories keep banging on about trying to reduce. Deficit is the difference between what the government spends and what it gets in. So while it remains positive, as it is at the moment - currently £121bn per annum according to Wikipedia, our national debt rises. In the ideal world we want a budget surplus which would mean our national debt was falling1. Even if it's going down, as it is at the moment, our debt continues to rise. A cynic might say that this is why the Government prefer to talk about how they're "reducing the deficit" as that sounds better than "reducing the amount the national debt is increasing".

So turning to Meacher's letter he says:

It shows that the richest 1,000 persons [...] increased their wealth over the last three years by £155bn. That is enough for themselves alone to pay off the entire current UK budget deficit and still leave them with £30bn to spare.

You can, I hope, see the problems with this straight away. He's comparing their income over three years with the deficit which is, by definition, over one year. So assuming our deficit was £121bn over three years2 our national debt would have risen by £363bn in three years so £155bn would pay off about half of the increase with nothing to spare.

It gets worse. In his closing paragraph he writes:

The increase in wealth of this richest 1,000 has been £315bn over the last 15 years. If they were charged capital gains tax on this at the current 28% rate, it would yield £88bn, enough to pay off 70% of the entire deficit.

Again you can see the problem. He's now taking about a fifteen year period and even if he's really talking about taking £88bn off them on one hit then yes, it will "pay off 70% of the entire deficit" ... for one year.

I despair. These are our MPs: if anyone is meant to understand this mess they are, especially if they're going to mouth off about it in the press.

  1. Although being a Keynesian I would argue that at the moment this is not the right thing to be treating as our economic priority, but that's an argument for another day.
  2. Yes, I'm aware it wasn't but it's a good wet finger.

Tags: national politics Written 13/03/13

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