Debt and deficit: The Coalition needs clarity

The Government’s message needs to reaffirm to the electorate what is actually happening to the public finances, and how his Government intends to deal with it

Is the coalition working?
Lewis James Brown
On 27 August 2012 11:16

I am sure many of The Commentator’s readers will be familiar with the truth behind the political pantomime played out in Prime Minister’s Questions and elsewhere over the Coalition’s deficit reduction plans. On the one hand, the ‘Conservative-led government’ publicly advocate spending cuts as harsh-but-necessary medicine. Labour claim that the scope of the ‘too far, too fast’ slashing is choking off economic recovery.

Meanwhile, in reality, the Coalition’s revised programme has ended up startlingly close to Alistair Darling’s original proposals (due to global events, slower than expected bounce-back growth and coming to terms with the previously hidden extent of the balance sheet crisis). Ed Miliband’s opposition party finds itself arguing against its original position of moderate cuts and calling for ever more fiscal stimulus and the necessary borrowing it brings. 

The choice at present then, for voters who can see past the rhetoric, is one of a precarious Coalition who don’t have the political stomach to do what they know is necessary, or a Labour Party that wants to repeat the same doomed mistakes of its past and kick the can a little further down the road.

However, polling for the Centre for Policy Studies’ new report released today - "A Distorted Debate: the need for clarity on Debt, Deficit and Coalition Aims" - suggests that worryingly few voters understand either what the Coalition was trying to achieve, or what they actually have achieved thus far.

In an opinion poll conducted by ComRes for the Centre for Policy Studies, when asked what they feel is most accurate:

- 47 percent of British adults responding incorrectly said they thought the Coalition Government is planning to REDUCE the national debt by around £600 billion between 2010 and the end of this Parliament in 2015.

- 12 percent said the Coalition was planning neither to reduce nor increase the national debt

- 32 percent said they did not know

- And only 10 percent were right in saying that the Coalition Government is planning to INCREASE the national debt by around £600 billion by the end of this Parliament

We have set out these results in a short informative animation:

This outcome is in large part a result of the rhetorical battle over the government’s actions. It makes sense for the Coalition ministers to simplify matters by saying we are ‘paying off the nation’s credit card’. At the same time, it is beneficial for the Labour party to display the government as being obsessed with ‘paying off debt’.

The reality, as we well know, is that debt will continue to increase all the while we continue to run a deficit, and this looks like it will continue until well into the next Parliament.

The Coalition came into office in 2010 with the stated aim that it would eliminate the current structural deficit by the end of this Parliament and stem the increase in public debt as a proportion of GDP. It now looks extremely unlikely that the Coalition will achieve either of its aims.

Though the deficit fell  by around one quarter as a proportion of GDP between 2009/10 and 2011/12, the cyclically-adjusted current deficit (the part the Coalition said it wanted to eliminate within five years), had only fallen by 13 percent over the same period.  Up until the end of the last financial year, almost all of the reduction in the deficit has come from cuts to investment spending and tax increases, not from current spending cuts.

Official national debt is forecast to rise by £605 billion (in nominal terms) over the course of this Parliament, or from 53 percent of GDP in 2009/10 to 76 percent of GDP in 2014/15. Growth and borrowing figures released this week make it all the less likely that debt will be on a downward path until the next Parliament, and we are now looking at a figure more like £670 billion.

The Coalition has of late been trying to push the positive message that the deficit is down by a quarter. The deficit is being reduced, even if more slowly than originally planned. But this does not seem to be resonating widely with the public - our polling shows just 39 percent agree with the statement "The Government has reduced its budget deficit", compared to 33 percent who don’t know and 29 percent who disagree.

So there appears widespread confusion about the aims and achievements of the Coalition so far. This is particularly important given it is increasingly likely we’ll see some movement on policy soon, with rumours that the Treasury are planning a new round of spending cuts. Continuing with the status quo would appear to have little economic or political pay-off for the Government.  

Ignorance of the true scale of the UK’s fiscal predicament, however, weakens the case for necessary action. But the only way we will return to growth is by diverting as many resources as possible back to the private sector. To give the Chancellor the best opportunity to make his case, it’s clear that the Government’s message needs to reaffirm to the electorate what is actually happening to the public finances, and how his Government intends to deal with it.  

Lewis James Brown is Online Manager at the Centre for Policy Studies. He tweets as @LewisCPS

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