Following on from previous posts – How much has government spending been cut – | How was budget deficit cut by 25%?.

It will be useful to republish some data from Mainly Macro – on a post UK austerity and some facts

UK Cyclically adjusted primary deficit

The cyclically adjusted deficit strips away the part of the deficit related to the economic cycle. The actual budget deficit is much higher – because in a recession, borrowing increases as tax revenues fall and welfare payments increase.

A primary deficit takes away interest payments.

The cyclically adjusted primary deficit could also be viewed as the ‘underlying structural deficit’

The sharp fall in the cyclically adjusted primary deficit from 6% of GDP to 1.5% GDP in 2013, shows a contractionary fiscal policy – the combination of spending cuts / freezes and tax increases.

There is hope that the UK may officially be leaving the current recession (for the second time). However, this recovery needs to be put into perspective in to what kind of recovery should we have been expecting?

Interesting research by  Moritz Schularick, Alan Taylor, 24 October 2012 on this post- “What should we have expected in terms of economic recovery?

They look at the nature of the recession and examine what kind of recovery might have been expected. Also, they compare the UK recovery to the US. A few notes:

• Both economies experienced a deep financial crisis. With excess credit overhang, you would expect a longer recession than say 1981 or 1991 when the recessions were caused by monetary and or fiscal tightening.
• However, even allowing for the nature of the balance sheet recession, we should have expected to see a much quicker and stronger recovery from the UK.
• The pink lines show the area of expected economic recovery, the blue line shows actual Real GDP growth.
• The US has slightly exceeded expectations – true US unemployment is still high, but given the nature of the recession, they are perhaps doing reasonably well.
• The UK by contrast has completely underperformed.  In particular, the economic growth rate since 2009 is very disappointing.
• My only criticism of the research is that they set the bar fairly low. Previous financial recessions involved significant mistakes in fiscal and monetary policy. Mistakes we have tended to repeat.

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Readers Question: Hi and thanks for your article “UK Budget Deficit”. I am ‘new’ to economics, but trying to do my bit to get to understand it all. From your article I followed links and found the ”Pocket DataBank” published by the treasury. Being a bit retentive about things, I tend to learn by adding things up, and if I my total matches published totals, then I know I’ve understood things correctly.I got confused on tables 11A & 11b

On 11a, I found:
“FINANCIAL YEAR PUBLIC SECTOR BORROWING FIGURES (£ billion) >> Net Borrowing (ANNX) 2011/12″ = -123.8bn

But on 11b, it says
“PUBLIC SECTOR NET BORROWING (J5II) 2011/12″ = 124.7

And then your article quotes £119.3 billion

Would you be able to help me understand the differences?

I spend a lot of time researching data on government borrowing. It is definitely complicated by the fact that there are many different variations – different data series – of essentially the same thing. I once spent a long time researching debt statistics and came up with this post. Understanding debt statistics – but even that does not include every variation of the many different series and data tables. It does frustrate myself too.

I don’t want to further confuse you, but if you look at ONS site (the main place I go for statistics, you will see public sector net borrowing).

In 2011/12 public sector net borrowing was £121.6 billion; this is £4.4 billion lower than the Office for Budget Responsibility (OBR) forecasted net borrowing for 2011/12 of £126.0 billion

so that’s a 4th version to throw into the mix.

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The government have repeatedly pointed to their ‘achievement’ of cutting the budget deficit by 25% in the past two years. But, how has this been achieved? and has it actually helped the UK economy?

UK Net Borrowing

This shows a 25% fall in annual borrowing between 2009-10 and 2011-12.

(Net borrowing – is the annual amount the government have to borrow. The amount spending exceeds tax revenue.)

Public Sector Net investment – HM Treasury psf

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