In Defence of Liberty

Driven by data; ridden with liberty.

Statistics and Lampposts XVII: Deficit Halved, Truth Halved

How we judge the deficit will be a key test for this coalition government. (Edited: [Duncan])

How we judge the deficit will be a key test for this coalition government. (Edited: [Duncan])

Launching into the New Year, the Conservative Party released a new poster onto social media. Focussing on the Conservative’s supposed economic competence, the poster reads:

Let’s stay on the road to a stronger economy. 1.75 million more people in work. 760,000 more businesses. The deficit halved.

The statements about numbers of employed citizens and new businesses appear to have unusual baselines, whilst the claim that the national deficit has been halved is somewhat startling. As highlighted by Fraser Nelson, editor of The Spectator, there is much confusion between a nation’s debt and its deficit. A July 2012 ComRes poll asked responders whether they believed the government was going to reduce or increase the national debt by £600bn, or keep it level over the course of this parliament. Only 10% answered correctly that the coalition government was planning to increase the debt between 2010 and the General Election in 2015. In political debates on the British economy, imprecision prevails.

Deficits

The current budget deficit is the difference between the amount that the government spends in its usual activities, and the amount that the government levies in taxes and other receipts within a single year. The government may also borrow funds for investments. The public sector net borrowing measures the gap between the raised revenue and total spending, that is, current expenditure plus net investment.

These deficit measures are recorded in sterling. According to the Office for National Statistics, the current budget deficit was £111.2bn in 2009/10, and £72.8bn in 2013/14. This is a reduction of 34.5%. Over the same period, public sector net borrowing shrank from £156.9bn to £93.4bn – a cut of 40.5%.

The source of the Conservative claim is the Office of Budget Responsibility’s December 2014 Report. In paragraph 1.7, the report states:

Relative to GDP, the budget deficit has been halved to date, thanks primarily to lower departmental spending (both current and capital) and lower welfare spending.

What has been “halved” is neither the current budget deficit nor the public sector net borrowing in pound sterling, but the ratio between one of these measures and Britain’s gross domestic product (GDP). Unsurprising to those versed in fractions, a fraction may become smaller by increasing its positive denominator. The nation’s GDP has grown irregularly over the course of this parliament, and can be considered one of the government’s economic successes. However, the Conservative poster has chosen to exaggerate the coalition government’s attempt to erode its own borrowing, by this particular selection of an indicator.

Nevertheless, this poster proves one thing: the campaign for the next election has now started in earnest. Let the tactical imprecision, vague insinuations and gross simplifications begin.

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This entry was posted on January 3, 2015 by in Statistics and tagged , , .
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