Ed Miliband “would run a budget deficit permanently, adding to debt indefinitely, every year, forever”, David Cameron suggested yesterday.
While commentators weigh up his latest proclamation – and continue to decipher the Autumn Statement by sharing unwelcoming screenshots of spreadsheets – a startling poll from a few years ago has resurfaced.
When voters were asked a question that tested their understanding of the difference between the debt and deficit, only one in seven answered correctly.
Voters were asked whether the national debt would be reduced if the government eliminated the deficit in five years time. The implication is that they would run a deficit up until that time, therefore adding to the national debt. Only 14 per cent of voters picked up on this.
The poll was run by Neil O’Brien, then running the Cameroon’s favourite think-tank Policy Exchange, now an adviser to George Osborne. He wrote in 2011 that they ran the poll “a while back”. Might public understanding have since improved?
There is little reason to expect it might have, given the many competing definitions of the debt and deficit Osborne and Balls have since offered us all.
This BBC summary from earlier this year provides a good overview. As it explains, there is a difference between the current account deficit and the capital account deficit.
There is a difference between the current account deficit and the capital account deficit.
The current account refers to government’s everyday running expenses – from the state pension to the cost of running departments. The capital account is another pot of money that is spent on longer-term investments, like big infrastructure projects, and is counted separately.
The simple question poised by Policy Exchange becomes more complicated. It’s possible that the government could run a current account surplus (as the UK did every year from 1947 to 1974, and from 1998 to 2001) and a capital account deficit.
More generally, the total amount the government borrows is most simply understood as the sum of any deficit on the current account and any deficit on the capital account. This is known as “public sector net borrowing”, or PSNB.
Labour and the Tories don’t agree on how to define the deficit.
Except, as Channel 4‘s FactCheck has detailed, Labour and the Tories don’t agree on how to define the deficit. Ed Balls tends to refer only to the current account when he talks of how Labour will reduce the deficit; Osborne refers to PSNB. Most economics refer to the wider measure.
Some pundits also refer to the structural deficit, which is effectively a cyclically-adjusted version of PSNB (or the current account deficit, if you’re Balls). In other words, it disregards the business cycle: the structural deficit is lower than the current account deficit during recessions (e.g. 2009 to 2013), but greater during prosperity (e.g. 2003 to 2007). It is an underlying measure of the deficit.
That is the deficit George Osborne pledged to eliminate by 2015-16 in 2010. It is now widely recognised that he will fail, partly thanks to weaker than expected wages.