FactCheck: pre-budget report PMQs

Monday's emergency budget was on the agenda at prime minister's questions.

The analysis

Not so long ago, Labour swore by a fiscal rule that said the country's debt would not be allowed to exceed 40 per cent of national income in any one year. But Monday's pre-budget report threw this out in the interests of repairing the damage of the recession, allowing debt to rise, and rise, and rise.

Whether it will double, however, depends whether you measure it in pounds, or as a proportion of national income.

Cameron goes for the former - as he says in parliament today, debt was indeed £526.8bn last financial year; the PBR estimates that this year it will reach £602.0bn.

In 2013-14 it's projected to reach £1,084bn (£1.08 trillion), so slightly more than a doubling in pounds billion terms, compared to last year.

But the more usual way to make debt comparisons over time, or internationally, is as a proportion of national income. This gives a more representative indication of an economy's balance sheet: the bigger the economy, the bigger the debt in currency terms it would be expected to carry.

This measure gives a different picture: believe it or not, the government's official predictions are for the economy to grow from the end of next year.

Last year, the national debt was 36.3 per cent of GDP; it's expected to be 41.2 per cent of GDP this year, and final 2013-14 figure tots in at 57.4 per cent.

The change from 36.3 per cent to 57.4 per cent isn't anything like a doubling - it's a 58 per cent increase.

So Cameron's claim's not wrong, but, as with many damned statistics, it doesn't necessarily give the whole picture.

The sources
Pre-budget report 2008 (.pdf)

The analysis

Value-added tax is being cut temporarily from 17.5 per cent to 15 per cent from next month. Assuming shops pass on the cut, low-income families will indeed benefit - as will anyone who buys anything subject to VAT. But Brown doesn't really answer Clegg's point - who will benefit the most?

VAT is essentially a tax on spending, although it's not charged on a number of "necessities" - such as food, children's clothing and public transport.

The people who spend the most money, therefore, pay the most VAT. But the tax is regressive - it has a disproportionate effect on poorer people, as their spending makes up a higher proportion of their income.

That said, because VAT is not charged on essential items, the households that spend more tend to pay VAT on a greater proportion of their spending, as they have more cash to splash on so-called luxury items.

To complicate things further, some households with a lower income actually have higher spending - perhaps because they temporarily need to spend more money, or perhaps because their low income is temporary - because of, say, unemployment or life changes such as retirement or having children. So it's arguable whether all the households should be lined up and measured according to how much they seem to earn, or how much they spend.

Unfortunately for those after a quick answer, in this case, both measures give a different picture.

The government is also permanently increasing alcohol, cigarette and fuel duty to offset some of the VAT changes. The Institute for Fiscal Studies estimates the biggest gainers from the combined VAT and duty changes - as a proportion of their net income - are, by a long way, the poorest 10 per cent of the population.

The next poorest 20 per cent make the next biggest gains, after which the picture becomes less pronounced.

But if the effect is measured by spending level, the picture is reversed. The poorest 10 per cent gain the equivalent of just under 1 per cent of their expenditure; the richest 10 per cent gain around 1.5 per cent.

The sources
IFS pre-budget report briefing: gains - percentage of income, by income level (.ppt)
IFS pre-budget report briefing: gains - percentage of spending, by spending level (.ppt)

The analysis

We looked at the national insurance changes in more detail yesterday - from 2011, anyone earning more than around £20,000 a year will be left worse off compared to the position today (although anyone earning less than £40,000 a year will be better off compared to the situation in April this year, before basic rate personal allowances were increased by £600).

The analysis

It's Brown's customary dig at the Lib Dems - portraying their convoluted redistribution-of-spending-with-perhaps-the-odd-tax-cut-on-the-top policy as a straight spending cut. It wasn't true the other week, and it isn't true now.

Let's not forget that since then, the pre-budget report has geared Labour up for future spending cuts of £37bn to pay for the recession-tackling cash boost, either.

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