Cormac Hollingsworth explains how the coalition, which came to power pledging to eliminate the deficit, will pile on more debt than any modern government.
From the end of the Second World War until the 1970s the UK’s debt burden as a share of GDP shrank from a high of almost 240% down to the 50% level. The stagflation of the 1970s meant that this remained the level until 1979.
Chart 1 shows the changes in debt burden as a proportion of GDP in the Parliaments since then.
Unless we forget, the coalition’s goal was to cut close the deficit. At the same time, they wouldn’t borrow more than Labour did in the previous parliament.
The Office for Budget Responsibility (OBR) expected the coalition would increase the debt burden as a share of GDP by 16.9 percentage points. Labour between 2005 and 2010 increased the debt burden by 18.4 points.
But last year’s growth shock changed all that, and the current expectation from the OBR published last week was that the coalition would increase the debt from 52.5% of GDP to 76.3% of GDP, an increase of 23.8 points.
GDP growth feeds into this ratio in two directions, first directly as the larger GDP is, the smaller debt is as a proportion; second indirectly through higher tax receipts reducing borrowing, and thus reducing growth in debt.
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So while the current OBR prediction was for a 23.8-point increase in the debt burden is predicated on there being low growth for the next year, there might have been a chance that we could have had a positive surprise.
With the OECD raising the risk of a double dip in the UK there is no chance of this happening.
That means we can now be confident this government will have borrowed more over a parliament than any modern government. So much for deficit cutting.