UK Budget Deficit
A budget deficit occurs when government spending is greater than tax revenues, Therefore the government has to make up the shortfall by borrowing from the private sector.
It is currently measured by the Public sector net borrowing (PSNB)
(N.B. Don’t get confuse the budget deficit with the Trade Deficit, this occurs when Imports are greater than exports)
The estimated PSNB for 2011/12 is £125bn - just under 10% of GDP
Previous Terms for Budget Deficit
- PSNCR Public Sector Net Cash Requirement.
- PSBR - Public Sector Borrowing Requirement.
Current Term for UK Budget Deficit
- PSNB Public Sector Net borrowing
UK Budget Deficits 1990-2011
Annual budget deficit since 1990 as % of GDP
PSNB = Public Sector Net Borrowing. This excludes financial sector intervention.
UK Government Borrowing 1974 - 2011
- Public Sector finances at ONS
Difference between Budget Deficit and National Debt
The National Debt is the total cumulative amount that the government owe
The National Debt:
This is the total (cumulative ) amount of debt that the government
owes the private sector. For latest figures on UK national debt
- see: UK National Debt
Chancellors Golden Rule:
The UK chancellor has said that the govt will only borrow, over the course of the economic cycle, in order to finance sustainable investment
- Cyclical Deficit:
During a recession it is likely that there will be an increase in govt borrowing. This is because:
- Tax revenues will be lower.
- less people are working therefore income tax will be less
- Consumer spending is lower therefore VAT receipts are lower
- Government spending will increase
- More will be spent on unemployment benefits
- To increase AD fiscal policy requires higher spending and lower taxes
- A cyclical deficit is not necessarily a bad thing during a recession. If the government tried to balance the budget in a recession this would involve higher taxes and less spending reducing AD further.
- Structural deficit:
This the level of the deficit even when the economy as at full employment, The govt wants to avoid this unless it is for suitable investment.
- Growth and Stability Pact:
A criteria for joining the EMU that the govts budget deficit should be no more than 3% of GDP.
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