My column from the Ham & High this week:
Miss – what’s a structural deficit? That’s a question that I was asked recently – and am asked quite often – when I go to schools or meet young people. I tend to simply explain it by saying that we’re all used to the idea that we may spend a bit more than we have some months and make up for it in other months, e.g. saving a bit in the run up to Christmas and then spending rather more than our pay check in December.
That’s fine if the ups and downs balance out, but if we’re persistently spending more than we get, that’s a problem – and the equivalent of a structural deficit for the government. In good times taxes are higher, and in bad times taxes are lower (and benefit payments higher). If those even out over time that’s fine, but we’re in a situation at the moment where they don’t – so we are not only deeply in debt but, if nothing is done, will continue to go ever further into debt.
Then there’s politics. So the argument is how you get to a position where you are living within your means – ie eradicating the structural deficit. I generally go on to explain that it’s here where the political argument rages – between getting the structural deficit sorted in one parliament (the Coalition) or whether you do it in two parliaments (Labour). There’s no argument that it needs sorting – well there wasn’t until Ed Balls took up post as Shadow Chancellor and said there wasn’t a structural deficit under Labour – which explains a lot about Labour economic policy.
As I write, I am also listening as a debate rages on the TV (rage is perhaps overstating the case) about the cuts and the deficit. The conversation veers from the morality (or lack of it) of whether those who can least afford it are bearing the brunt of the cuts – and the oft stated view that without recovery and growth in the private sector – we won’t have the jobs and the money to make things better.
The answer, of course, is both are the case. We do need growth and we do need to protect the most vulnerable in society from the harshest effects of the cold winds blowing through our lives. Perhaps we had got too used to the years of plenty – or rather – we thought they were years of plenty because the way the last government spent money like water – we had no sense of what was to come (except Vince Cable).
Live now – pay later. We were all guilty!
There are lots of measures both in last year’s budget, the comprehensive spending review and this budget to try and protect the vulnerable. No – they are not perfect – but they are there. This year’s budget – re-linking pensions with earnings and the coming move to a universal pension will help millions of older people (especially women). The taking out of tax of 880,000 of the lowest pay earners and the year by year raising of the tax threshold until no one pays any tax on earnings up to £10,000 will help those most in need. The pay rise for those in the public sector on £21,000 or less announced in the Budget will help the lower earners and so on. Don’t want to just regale you with a list of the good bits – although there are lots more. But of course – there are harsh parts too – and belts are being tightened all over the place. And clearly those with the least margins of financial safety in their lives have very little room for belt tightening.
On the other side of the equation, in what was a fiscally neutral budget, there were breaks for growth and that is the engine that has to drive this recovery.
What is tough – and will get tougher – is losing jobs. People in work will mostly get by – somehow. People on benefits will mostly get by – somehow. But for those who lose their job – it will be devastating. The cuts were announced last year. Their impact has yet to fully hit. This budget promised growth. The proof will be in the pudding. And the question will be whether there’s a new job to be found within a time frame that can keep health, hearth and home together – and we need to keep a watch over that.
But above and beyond everything – that structural deficit has to be gripped. Until we live within our means – we will simply never get out of this mess!