factFiction51 Cameron busted on debt claimsThe claim

“We’re paying down Britain’s debts.”
David Cameron, 24 January 2013

The background

The Conservatives released their latest party political broadcast on Wednesday night.

The TV ad sees apparently ordinary members of the public asked to rate the government’s performance on paying off the deficit, cutting taxes and dealing with unemployment at the halfway point of the coalition.

Most people are fairly pessimistic and are then confronted with the supposed truth, FactCheck-style. The deficit has been reduced not by two or three per cent but by 25 per cent, for example.

David Cameron then tells viewers: “Though this government has had to make some difficult decisions, we are making progress. We’re paying down Britain’s debts…”

Stop right there. Because only a day before the broadcast was aired, the Office for National Statistics (ONS) said government borrowing and the budget deficit were going up not down.

Labour have seized on the claim, with shadow chief treasury secretary Rachel Reeves writing to Andrew Dilnot, Chair [*See update at the bottom of the page]of the UK Statistics Authority, claiming that “the Conservative Party may be attempting to deliberately mislead the public about these statistics and the Government’s record”. Is that more spin, or is the Prime Minister really trying to pull the wool over our eyes?

The analysis

The Conservatives make two subtly different claims in this broadcast. The first is that the deficit has been reduced by a quarter on their watch. The second is the government is “paying down Britain’s debts”.

Let’s deal with the budget deficit first. This is the difference between the money the government spends and what it rakes in through tax receipts and so on over a certain period.

The government’s preferred measure is public sector net borrowing, excluding interventions in the financial sector. The 25 per cent reduction claim rests on a comparison the deficit of £121.6bn run up in 2011/12 and £159bn in 2009/10.

That is a fall of about a quarter (We make it 23.5 per cent exactly). But this is based on annual figures which are now out of date, and the gap between spending and borrowing has been growing not shrinking in recent months.

In December 2012 – the most recent month we know about – we were running a deficit of 15.4bn, £0.6bn higher than December 2011.

In the ninth-month period from April to December last year, net borrowing (excluding the one-off windfall when the government took over Royal Mail’s pension assets) hit £106.5bn, £7.2 billion more than the £99.3bn shortfall run up in the same period the previous year.

So there was a point when the government could claim to have reduced the deficit by about a quarter, but since then, things have been moving in the wrong direction.

Structural deficit

There’s another big reason why we shouldn’t get too excited about the 25 per cent reduction claim.

When the coalition came to power George Osborne promised to eliminate the “structural current deficit” by 2015-16. That’s what the deficit would be if the economy was working normally, with capital spending on schools, hospitals and so on stripped out.

This is not the same definition the Conservatives are talking about in the video. Treasury figures show the government only managed to reduce the structural current deficit by 13.2 per cent between 2009/10 and 2011/12.

Since making that promise in 2010 the Chancellor has admitted he will miss the 2015/16 target, and he now says the structural current deficit will be in balance by 2017/18.

Economists have also pointed out than half of the claimed deficit cut between 2009/10 and 2011/12 came from slashing investment rather than cuts in spending or an increase in tax revenues – a policy that could hurt jobs and growth.

Debt

It’s easy to confuse deficit and debt. Borrow more than you earn this year and you are running a deficit. Debt is the total amount you owe from all the previous years.

You can turn your tap down by 25 per cent – or 13.2 per cent – but the level of water still rises. And Britain’s national debt is rising.

Debt was £811bn around the time of the 2010 election, or 55.3 per cent of GDP. By December last year it had hit £1,111bn, or 70.7 per cent of GDP.

The national debt is forecast to hit 74.7 per cent of GDP this year and peak at 79.9 per cent in 2015-16, before falling slightly by 2016-17.

The verdict

The Tories’ answer? Their line about paying down the debt reflects the fact that they are “taking the difficult decisions to deal with the economic crisis that the government inherited, and we’re making progress towards that, with the deficit down by a quarter”, according to the Prime Minister’s spokesman.

It’s true that the government has cut the deficit, however you calculate it, although more slowly than predicted.

The big confusion here is the difference between deficit and debt.

National debt will rise for the next three years, on the government’s own predictions, so it’s difficult to say how Mr Cameron can truthfully say: “We’re paying down Britain’s debts.”

The spokesman insisted the Prime Minister did know the difference between debt and deficit. Let’s hope so.

[*Update: Andrew Dilnot, chair of the UK statistics authority, has written to Labour's Rachel Reeves and to Prime Minister's Chief of Staff emphasising the difference between debt and deficit. Mr Dilnot writes: "It is clearly important for all parties to public debate in this area to understand the relevant statistical definitions and to distinguish changes in the level of debt outstanding from changes in borrowing per period, and to reflect these in their communication of the statistical trends involved." Labour have called this development "hugely embarrassing for David Cameron". Read the letter here and decide for yourself.]

By Patrick Worrall

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Category: Conservatives, David Cameron, Fact, FactCheck, Fiction
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