FactCheck: is debt coming down?

By Channel 4 News

Updated on 30 June 2009

Ed Balls claims the budget sets out how the national debt will fall. Is he right?

The claim

"Alistair Darling in the budget set out plans which show the deficit coming down, national debt coming down."
Ed Balls, BBC Radio 4 Today programme, 30 June 2009

The background

Schools secretary Ed Balls took to the airwaves this morning to discuss the government's new education proposals, and unleashed more bullets in the Labour investment versus Tory cuts war.

Balls promised spending on schools could rise, despite the straitened state of the public finances.

Asked by the interviewer what he would say to the Bank of England governor and the OECD, who say that Britain needs to set out what it would do to bring borrowing down, Balls referred her back to Darling's plans in the budget. These showed, he said, borrowing and the national debt coming down.

On the day official figures were revised downwards to show the contraction in the UK's economy was more severe than thought, the economic future may seem to be getting bleaker by the day. But do the numbers in the budget back up Balls' claims?

The analysis

The budget contains measures for a fiscal stimulus (tax cuts, more spending) intended to help kickstart the economy, followed by a fiscal tightening (tax rises, spending cuts) from 2010-11 to help rebuild the public finances.

It also sets out projections for debt and borrowing until 2013-14 (tables C4 and C5).

Net borrowing is projected to increase from an estimated £90bn in 2008-9 to a whopping £175bn this financial year. It then drops slightly to £173bn next year, £140bn in 2011-12, £118bn in 2012-13 and £97bn in 2013-14.

So these figures do show, in cash terms, a fall in borrowing. Although for comparison purposes, the total for 2007-8 was £34.6bn.

There's another common way of measuring debt and borrowing - as a slice of the economy, which usually gives the more useful way of drawing historical comparisons.

This measure shows a similar picture - a clear increase from 6.3 per cent of GDP in 2008-9, a peak of12.4 per cent this financial year, before falling to 5.5 per cent in 2013-14. For comparison, the same table puts net borrowing at just 2.4 per cent of GDP in 2007-8.

Although we only have figures for the first two months of this financial year, the Institute For Fiscal Studies noted that borrowing had increased more sharply than the government predicted. But let's leave that to one side, take Balls at his word, and keep focusing on the figures in the budget.

It's on debt where Balls' claim looks decidedly shaky.

The figures in the budget show a sharp increase to 2013-14. Public sector net debt is set to rise from an estimated £609.1bn in 2008-9 to £792bn this financial year, and £1,370bn in 2013-14. This is up from £526.8bn in 2007-8.

Big numbers - and again, it's a similar picture as a proportion of the economy. The budget put debt in 2007-8 at just 36.5 per cent of GDP (safely below the 40 per cent threshold Gordon Brown once set great store by).

Debt is then projected to increase steeply - by around 10 percentage points each year - to 65 per cent in 2010-11. The rate of increase then slows down, but it's still a clear increase nonetheless - to 70.9 per cent in 2011-12, 74.5 per cent in 2012-13 and 76.2 per cent in 2013-14. (These figures leave out the costs of liabilities and unrealised losses from bailing out the banks - including these could put things up to 79 per cent of GDP.)

Whichever way you look at it, these projections show debt as a share of the economy more than doubling over a six-year period. That's when the financial breakdown runs out.

So where does the falling debt projection come from?

The budget also contains "illustrative projections" of the public finances post-2014. These project the budget getting back in balance by 2017-18, once the "global shocks have worked their way through the economy in full".These also show that public sector net debt will start to decline as a proportion of GDP "by 2015-16".

The graph based on these illustrative numbers shows debt dropping for the next five years to 2019-20, when it comes in at around 70 per cent of GDP.

The verdict

The budget does set out "illustrative figures" showing the national debt starting to fall in around 2015 - although this fall is snail-like compared to the rate at which it is currently rising. Even by 2019-20, debt would still be nearly double that pre-credit crunch levels.

The IFS estimated after the budget that it could take until 2032 for debt to return to the 40 per cent ceiling of the sustainable investment rule.

As we get further into the future, there are also question marks over exactly what form the necessary fiscal tightening to achieve the fall in debt will take: the IFS estimated that the budget set out only around half of the necessary tax rises and spending cuts from 2014-15 onwards.

If we limit our scrutiny to the detailed figures given up to to 2013-14, debt is on a clear and steep upward trajectory.

FactCheck rating: 3.5

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