Colin's Journal

The big headline in the UK today was that the government has admitted that the current spending plans will result in a budget deficit of GBP20 billion. The BBC news didn’t mention anywhere what this was as a proportion of GDP, which is useful when comparing with the state of our continental neighbours. It seems to provide this information here but looking at the graph shown you would expect the deficit to be around 0.5%. If you read the description of the graph though you will see that this is excluding “borrowing for investment”. Now it’s always difficult to determine what can be classified as investment, versus on-going expenses, so this number should be viewed with suspicion from the start.

In addition it’s also not a useful number in the long run – you might have borrowed money for investment, but at the end of the day you still have to pay it back regardless of how it was accounted for on a year by year basis. I agree with the government approach of having a balanced budget only over the sum of an economic cycle (although that’s a very hard thing to achieve – it means you must make some sort of prediction as to the likely length of future growth periods or recessions!), but excluding borrowing for investment seems like a misleading thing to do.

I did manage to work out what the deficit is as a percentage of GDP – by looking at the latest figures from the latest figures from National Statistics. Here you can find that the GDP for 2001 was 988 billion (plus change), which leaves the deficit at around 2%.

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