Figures just released show that the government’s borrowing (to meet the deficit between the nation’s receipts and its expenditure) in March fell to £7.4 billion. Monthly borrowing for March was down by £400 million over the March 2014 figure. Taken over the year, borrowing came in at £87.3 billion, almost £3 billion below the forecast figure of £90.2 billion. This will equate as good news for the senior partner in the UK coalition government, the Conservatives, as they try to stress that Britain is doing well economically under their stewardship and that electing a Labour government in next month’s general election would risk unravelling all of the progress it and its junior coalition partner, the Liberal Democrats, have achieved over the last five years. Naturally, Labour’s take on these figures is quite different.
Over the past year, the deficit has fallen by £11.1 billion and currently stands at 4.8% of GDP. The coalition came to power in 2010, well into the period of turmoil caused by the Global Financial Crisis (taking over from a Labour administration). The high water mark for the UK deficit was seen in 2009-10 when it hit £153 billion, or 10% of the nation’s GDP.
A nation must balance its books by the end of a financial year, so any financial deficit is added to the nation’s public debt (which, of course, interest must be paid on). UK public debt stands at almost £1.5 trillion which represents 80.4% of GDP. The Labour party will be quick to point out that the public debt is now £0.5 trillion higher than when they left office.
The cost of servicing the UK debt is estimated to be approximately 3% of GDP or roughly £50 billion per annum. To put this figure in perspective, it is about half the total cost of running the NHS for 12 months. The UK deficit reduction target (broadly through austerity measures) for 2014-15 was £10 billion. Whilst eventually running a balance of payments surplus is achievable, eliminating Britain’s existing debt would be next to impossible.
By way of comparison, the Greek public debt to GDP ratio is 177% (taken as a whole, this ratio is 91.9% for Eurozone economies) or roughly €320 billion. Spain, arguably the next worst affected Eurozone nation after Greece by the Global Financial Crisis, has public debts of €1.03 trillion which it is managing to service (German public debt is €2.17 trillion).