debt

How important is the budget deficit?

How important is the budget deficit?

Readers Question: how important is the budget deficit? The budget deficit is the annual amount the government borrow. The government usually financed the budget deficit by selling bonds to the private sector To libertarian and free-market economists, budget deficits are liable to cause significant economic problems – crowding out of the private sector, higher interest rates, future tax rises and even potential of inflation. However, Keynesian economists are more sanguine arguing that in an economic downturn, a budget deficit plays an important role in stabilising economic growth and limiting the rise…

UK Government spending – real and as % of GDP

UK Government spending – real and as % of GDP

In 2015/16 the UK government is forecast to spend a total of £753 billion.Source: HMT public spending statistics (May 2017) Also see: HM Treasury PESA (released 21 July annually Real term trends in public spendingSource: HMT public spending statistics (May 2017)    UK Pension spendingMore details on pension spending. Government spending as % of GDP

Government debt under labour 1997-2010

Government debt under labour 1997-2010

Government debt under Labour was a major factor in the elections of 2010 and 2015. But to what extent did the Labour government really plunge the economy into debt during 1997-2007? Usually, when people say ‘it’s debt that got us into this mess’. They tend to view all types of debt as the same – equating government debt to financial debt incurred from selling sub-prime mortgages in the US. However, this is deeply misleading. The consequence of bad debt defaults in the financial system is very different to government debt…

Can Labour be blamed for the economic crisis?

Can Labour be blamed for the economic crisis?

Readers Question 1. Can Labour be blamed for the economic crisis (i.e. did they really ‘overspend’)?  My view is that the global economic crisis is to blame, and that Labour could have spent less but that this is easy to say with the benefit of hindsight. I don’t think there is any economist who would try to blame the global financial crisis and global recession on the fact the Labour government increased spending on the NHS / education by a relatively moderate amount. The global recession of 2008-13 was caused by…

Consequences of budget surplus legislation

Consequences of budget surplus legislation

Readers Question: Can you explain the short-term and long-term effects of Osborne legislating that there must be budget surpluses in any year when growth exceeds 1%, which is almost every year, whilst we have a rather large current account deficit. What will be the effects of this on private sector companies, public investment, households, the current account deficit, pensions and ultimately the banking sector. Running in a budget surplus means government spending must be lower than total government receipts (primarily tax revenues)

UK debt held by foreign investors

One of the most common questions asked is, who owns UK National Debt? Often  people assume that UK government debt is owned by foreign investors. However, foreign investors only hold about 25-30% of UK government debt. The rest is held by the UK private sector (pension funds, insurance companies e.t.c). Recently, the Bank of England has also been purchasing Gilts under the Asset Purchase Scheme. In the past few years, the proportion of UK government debt held by overseas investors has been about 30%. A different, but similar, concept is

uk-national-debt

What has borrowing ever done for me?

A reader on twitter asked – How has government borrowing helped me recently? I’m tempted to paraphrase as – What has borrowing ever done for me? – just so that I can make a reference to Monty Python and the Life of Brian? – And what have the Romans ever done for us? – apart from education, sewers, wine, roads, peace, law and order  … (youtube) I’ve answered this question several times before:Why does the government borrow? Should government’s borrowBut, I frequently get asked…

UK Debt Burden

UK Debt Burden

What is the UK’s debt burden? Firstly, there are different types of debt to considerGovernment debt – See: public sector debt (often referred to as National debt) Private sector debt – indebtedness of householders, finance sector and non-financial companies. External debt – the amount we ‘owe’ to other countriesIn addition, you might take into account – future liabilities, e.g. pension fund commitments. Also, equally important, is future economic growth, tax revenue and the ability to meet the current debt burden. Debt  burden as % of income The most useful way to consider the…