Tory Frontbencher Left Red-Faced After Making Trillion-Pound Slip Up On Live TV

[Nearly Sane]

Ffs! Useless.


https://www.huffingtonpost.co.uk/entry/tory-mp-left-red-faced-after-making-trillion-pound-slip-up_uk_67472a3de4b09fd0504a865d

[Gordon]

I don't think she is the sharpest chisel in the toolbox - John Crace regularly makes fun of her 'abilities'.

[jeremyp]

It's important to realise that the debt really isn't that important. It's the deficit that matters and even then, it's the deficit as a proportion of GDP not the absolute figure.

[Walt Zingmatilder]

Also Kemi admitted that some Tory governments failed to deliver on immigration but that was a long time ago.

[ProfessorDavey]

It's important to realise that the debt really isn't that important. It's the deficit that matters and even then, it's the deficit as a proportion of GDP not the absolute figure.

Actually, to my mind the most important matter is the cost of servicing debt/deficit and to consider that as a proportion of GDP. If you recognise that GDP is likely to grow and therefore likely to provide greater revenue to the exchequer over time then it becomes increasingly easier to service the same level of debt. So it is reasonable to consider that the key is to ensure that the cost to the public purse of debt remains relatively steady and comfortably manageable over the short to medium term.

There are times when it makes sense to allow deficit and therefore debt to rise provided that long term stability is maintained. Three obvious examples being in times of war (debt went through the roof in WW2), the global financial crisis and covid. The middle one is an interesting one as coming out of the GFC costs of borrowing were rock bottom so it was easy for a government to borrow to invest and therefore grow the economy out of the recession. This is what the previous tory (at that time coalition) government failed to do as they slammed down on growth, creating a much weaker economy much less able to deal with the (self imposed) shock of Brexit and the unexpected shock of covid.

[ProfessorDavey]

Also Kemi admitted that some Tory governments failed to deliver on immigration but that was a long time ago.

You mean in the early part of the reign of our current monarch

[jeremyp]

Actually, to my mind the most important matter is the cost of servicing debt/deficit

You don't service the deficit. Servicing the debt is part of government expenses. The difference between government expenses and income is the deficit. The deficit is more important than the cost of servicing the debt because it is the shortfall for all government expenses. As long as it is falling in relation to GDP (and, by extension, tax receipts), we can go on with our current levels of expenditure because it is manageable.

[ProfessorDavey]

You don't service the deficit. Servicing the debt is part of government expenses. The difference between government expenses and income is the deficit. The deficit is more important than the cost of servicing the debt because it is the shortfall for all government expenses. As long as it is falling in relation to GDP (and, by extension, tax receipts), we can go on with our current levels of expenditure because it is manageable.

If I was my daughter I'd accuse you of 'mansplaining' Jeremy.

I fully understand the difference between deficit and debt, but they are related - typically a deficit can only 'serviced' by increasing borrowing - if you deal with it by increasing tax (or receiving greater tax receipt) or reducing spending then you are changing the level of deficit rather than actually servicing it.

But I disagree that deficit is more important than debt, and certainly not more important than the cost of servicing that debt. There are times in which it make absolute sense to run a deficit budget (indeed that is pretty well what every government has done every year for decades), and to borrow year-after-year to fill that income/expenditure shortfall. The key is whether the cost of servicing that debt (i.e. debt interest) can be managed and that is a combination of two factors in the short term - the amount of debt and the effective 'interest rate' of that debt. In the long run you can also factor in growth as a debt of £1billion (and the cost of servicing that debt) in 2024 would be a tiny proposition of GDP and of overall public expenditure, but would have been very significant decades ago. And in this respect a bit of inflation is actually your friend.

[Walt Zingmatilder]

You mean in the early part of the reign of our current monarch

Absolutely.

[jeremyp]

If I was my daughter I'd accuse you of 'mansplaining' Jeremy.

Your previous post led me to believe that you didn't understand the relationship between the debt and the deficit.

I fully understand the difference between deficit and debt, but they are related - typically a deficit can only 'serviced' by increasing borrowing - if you deal with it by increasing tax (or receiving greater tax receipt) or reducing spending then you are changing the level of deficit rather than actually servicing it.

This part reinforces my opinion that you don't understand what the deficit is. You don't service the deficit. The deficit is simply the difference between expenses and income. It is necessarily added to the government debt.

[ProfessorDavey]

Your previous post led me to believe that you didn't understand the relationship between the debt and the deficit. This part reinforces my opinion that you don't understand what the deficit is. You don't service the deficit. The deficit is simply the difference between expenses and income. It is necessarily added to the government debt.

Deficit does need to be serviced - either through borrowing (which will impact debt) or influenced by alterations in future tax receipts of spending. But the latter will only kick in in the future, the immediate way to service a deficit is through borrowing, which is why deficit is also known as public sector net borrowing.