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Budget jargon buster on debt, deficit and borrowing

By Alice Tarleton

Updated on 21 June 2010

As Chancellor George Osborne prepares to unveil his first budget, Channel 4 News deciphers some of the financial terms likely to crop up in his speech and beyond.

Red box and paper

Aka borrowing. The amount by which government spending exceeds government income in a particular year - the new balance going on the government credit card. Debt (see below) is the total of all the previous years' deficits which have yet to be paid back. 

"Deficit" usually refers to the headline amount being borrowed in the current financial year; in 2009-10 it came in at £156bn. Not to be confused with…

Structural budget deficit
This is an adjusted measure of the underlying gap between government spending and government income. Over an economic cycle, the country might be expected to borrow more in leaner years to offset the good times. But the structural budget deficit is the bit the Treasury doesn't expect just to go away when the economy picks up. George Osborne said he wants to zap this by the end of the current parliament - which means £24bn of extra spending cuts and tax rises on top of the £51bn already pencilled in by Labour.

Not seen since well before the credit crunch - but if a government spends less than it gets in taxes, the result is an annual surplus.

National debt
The amount the government owes to individual, institutions and other countries. Government bonds are sold to - for example - insurance companies, pension funds, and banks, plus many taxpayers also own a slice of the UK by putting money in National Savings and Investments.

The national debt was just over £900bn at the end of May 2010 if nationalised banks such as Northern Rock are included on the balance sheet.

More budget analysis from Channel 4 News
- Gary Gibbon: billions of reasons for raising VAT on budget day
- 'Council tax freeze' softener for budget cuts
- Cuts could test Lib Dem unity
- FactCheck: gold-plated public sector pensions?

Office for Budget Responsibility
A new independent public finances watchdog set up by George Osborne. It signs off official growth and borrowing forecasts; in the past these were revealed at the Budget by the chancellor . The OBR gave its pre-budget forecast last week; new forecasts are due tomorrow, taking into account the likely effect of budget policies on the public finances. As Faisal Islam has noted, this could make unpleasant reading for the chancellor.

Red book
The full budget document, filled with numbers and charts, which accompanies the chancellor's budget statement. Not to be confused with the red box - in which he carries his speech to the Commons.

Public spending
How much the state spends. Two main categories: capital, or investment, spending - which goes on things with a long-term value like new or upgraded buildings, roads, machinery etc. Resource, or current, spending is the money that goes on day-to-day running costs which recur year after year, such as wages and benefits.

What might the budget bring?

John Whiting, tax policy director of the Chartered Institute of Taxation looks ahead for Channel 4 News:

• Income tax – there will be a "significant step" towards the promised £10,000 personal allowance (i.e. the yearly amount of income an individual can have before income tax bites). Currently £6,475, an increase of £1,000 from next April (worth £200 to basic rate taxpayers) is on the cards.
• National insurance – the 1 per cent rise in all rates announced by the previous government will go ahead; there is a promise of help for employers through an adjustment to the point at which employers start to pay NICs on their employees’ pay, but it seems that employees and self-employed will see part of that income tax benefit clawed back through increased NICs.
• Capital Gains Tax (CGT) – the current 18 per cent tax rate will increase to something "closer to income tax rates", with "generous relief for entrepreneurs". This seems likely to mean a 40 per cent rate for higher rate taxpayers, 20 per cent for basic rate payers (but gains may push them into the higher rate bracket). Key issues are: from when (hopefully not before April next year); what gets the "generous reliefs" (undoubtedly own businesses, but what about shares in employers?); and what about relief for inflation?
• Benefits – expect some more details of how tax credits are going to be restricted for higher earners, possibly by scrapping the £545pa "family element". Curtailment of child trust funds will probably be confirmed as well.
• Stamp duty – the coalition have said they would like to make permanent the current temporary relief for house purchases up to £250,000 by first-time buyers.  This runs until March 2012 so it’s more likely to be a subject for next year.
• Business taxes – cuts in the main rate of corporation tax from the current 28 per cent have been promised, but the plan to pay for them with cuts in capital allowances and reliefs has upset those (manufacturers especially), who would lose out, so may go out for further consultation.

- Read John Whiting's full analysis

Retail prices index (RPI)
A measure of inflation (how much prices are rising by). Benefits are usually increased by RPI inflation to reflect the increased cost of living. RPI tends to be higher than the consumer prices index (CPI) - the government's target measure of inflation, which excludes council tax and some housing costs.

Real-terms spending figures are adjusted for the effects of inflation, unlike cash totals, which just give the amount of pounds. Real-terms figures make it easier to compare the impact of policies and spending decisions over time by stripping out the effects of economy-wide inflation. Unless we have deflation rather than inflation (so things are getting cheaper rather than more expensive), holding something constant in cash terms equals a real-terms cut, once the effect of inflation is taken into account.

The rate at which the economy is expanding. Negative growth means the economy is contracting - cue falling employment, falling tax revenues and, if it goes on for long enough, a recession.

Claimant count unemployment
The number of people claiming unemployment benefit. This is a narrower measure of unemployment than the headcount of people who say they're seeking work (as measured by the Labour Force Survey). The claimant count is particularly relevant to budget matters as it gives an idea of how much the state is likely to have to spend on unemployment benefit.

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