The Debt and Deficit

The Debt and Deficit

One of our longest running campaigns at the TaxPayers' Alliance is to stop the overzealous growth in our national debt.

In order to achieve this, it is essential to educate the public on the consequences of economic policy, deficit vs debt and the problems caused by the accumulation of massive government debt. 
Political jargon can often make understanding and discussing these issues even trickier. So below we’ve set out a quick guide on the terms debt and deficit, and the campaigns we've run in recent years. This is to highlight what we have done, why we care, and why you should care.

Deficit vs debt

Essentially: Government deficit spending is the difference between what a government brings in and what it spends. The debt is the deficit over the years added together.

That's the basics of it. For an in-depth explanation try this blog post that TPA Policy Analyst Harry Fairhead wrote.
For a simplified explanation of deficit spending by the government, imagine the UK were a person --

Britain explains the debt and deficit for the TaxPayers' Alliance

(via PolandBall comics)

Each month UK spends more than it earns and takes out a payday loan to cover the difference. This is the deficit.
Eventually UK takes out a regular loan to consolidate the payday ones. This is the debt.

At this point a (sensible) person would cut back on their monthly expenses, stop taking out a loan every month and start paying off their debts. But not the UK. As a country we fail to understand the severity of the problem; instead of being seen as good financial sense reducing public spending is demonised.

Public Sector Net Debt over time graph by TaxPayers Alliance Public Sector Debt and Deficit

Of course, the official National Debt is only a (very eye-catching) part of the story. While the government records "public sector net debt," there are plenty of other items that should be taken into consideration. Unfunded public and private sector pensions, bank bailout debts, the Local Government Pension deficit and PFI all need to be taken into account, and that's before we count the cost of necessary nuclear decommissioning. Our report in 2009 suggested the real National Debt could be as much as 4 times higher than the officially stated figure - and since we've been running a deficit ever since, that's almost certainly gone up.

Common myths about the debt and deficit:

The deficit is necessary


Just to clarify, we're talking about the structural deficit of the UK here. Please check here for a robust definition of the structrual deficit, but essentially it's what it sounds like. The structural deficit is best described as the government deficit unaffected by one off events (like performing emergency surgery on the financial sector).

So we're not talking about emergency events. We're talking about a long term, sustained gap between income and spending.

So no. The deficit is not necessary.

Even if you completely disagree with everything we stand for as an organisation it is difficult to argue that there is any benefit to 'revolving door' employment policies in which public sector employees are given a 'golden goodbye' only to be re-employed days later. It's difficult to argue against the NHS prescribing cheaper alternatives to the same drug or scrapping the bus services operators' grant or union subsidies and other examples of waste.

The TaxPayers' Alliance get people contacting us every day about examples of government waste and our research shows that there is much that can be done.

Raising taxes encourages fiscal churn a big theme in the Spending Plan published by the TaxPayers' Alliance

We can just raise taxes

First, there is a lot of waste in the system and raising taxes does very little to help the majority of people. People from all income levels are stuck giving money to the government on one hand, only to get it back as a benefit or service with the other hand, after it has circulated around the system for a bit.

Second, people and businesses like to know what's going to happen in the future; it means they can plan for the long term. This can't happen if our country has a reputation for semi-randomly levying taxes on a small subset of the population that are in the bad-books at any one time.

The UK Tolly's Yellow Tax Handbook fro 2012-13 compared to Hong Kongs tax code in the same year

If big business just paid their taxes it would be fine

Tax evasion is illegal, the second HMRC gets wind of someone evading their taxes they can claim that money back.

Tax avoidance, on the other hand, is perfectly legal and this is what big corporations and celebrities do. But people who own NISAs are also tax avoiders. Our tax code is huge, loopholes exist everywhere and it can be very easy for people to play the system. We absolutely need a more transparent, simpler tax system that clearly states what is due to HMRC.

The problem is that a complete overhaul of the tax system is what is needed and this would be a huge step for the Government. Successive Governments have a habit of introducing loopholes to 'give breaks to hard working taxpayers' which compound the problem. We need a system with no loopholes, no gimmicks, no tax breaks. Fiddling around with exemptions may be a vote winner but it does not fix the root cause of the problem.

We can grow out of our debt

To return to our simplified metaphor, this is like banking on a salary increase to get you out of personal debt. It's likely to happen but then we find ourselves in a financial crisis and the future becomes a lot more uncertain.

What are we doing?

Unfortunately there's little we can do about the money we've already borrowed. As such it's now vital to get the deficit, and therefore spending, under control. One way of doing this is making the public more aware of just how much we're borrowing each year and how borrowing is simply deferred taxation. Just as our tax money is currently paying the interest of previous generations' spending, so to will future generations be paying off our spending.

In the past we have organised a rally against debt, taken our debt clock on tour and took part in the 2020 Tax Comission. You can read about our more recent work below.

Online Debt Clock

The UK Debt clock counts out Government debt as it happens and the numbers are terrifying

In May 2014 we relaunched our Online Debt Clock. Like its 2010 counterpart the Online Debt Clock and its Twitter counterpart tracks the national debt and highlights the consequences to our economy. Convenient and easily accessible our Online Debt Clock is a stark reminder of the staggering amount of debt our Government has racked up.

Spending Plan

Deal with the deficit using the Spending Plan TaxPayers Alliance

In 2015 The TaxPayers' Alliance launched its landmark Spending Plan. The Spending Plan put forth a focused set of proposals that the Government could take to bring deficit spending down to a sustainable level. In the hope of halting the reckless frittering away of our money, The Spending Plan meticulously laid out why economies with lower public spending have stronger, faster and more prosperous economic growth. Our publication ignited a timely debate just before the 2015 election asking political parties to be transparent about how they would deal with the deficit.

Generation Screwed

The next generation will bear the burden of debt through deferred taxation

Finally, this year saw our Generation Screwed campaign flourish. Above all, the accumulation of debt damages future generations. It is young people growing up today who will have the daunting task in the near future of dealing with debt created by a current government with little regard for them. It's a huge injustice and one that will only get worse if action is not taken now. As a result we started our Generation Screwed campaign that saw young people protesting outside the Bank of England and talks around the country.