Britain’s budget deficit has been at the centre of public debate since the financial crisis broke out in 2008 and the economic downturn began. Every pre-budget report, every budget and every public spending review has been assessed for its implications for government borrowing and national debt. Yet the key consequence each time has been what it has meant for the growth rate of the UK economy, for it is on growth that both deficits and debt ultimately depend.

The recession that started in 2008 lasted longer in some countries than others, the difference owing as much to fiscal policy and the degree to which governments made austerity rather than recovery their aim. At the G20 summits in London and Pittsburgh in April and September 2009 global leaders agreed to cooperate to ensure that growth was sustained. But Labour had lost the election by the time of the Toronto summit in June 2010 which sadly abandoned that stance. It committed the advanced economies to at least halving their budget deficits by 2013 instead of prioritising growth.

Even so, few finance ministers pursued austerity with more vigour than Britain’s George Osborne. He gripped the UK economy in a budget squeeze far tighter than that in the US and twice as tight as in the eurozone.

The consequences of austerity

The result? In the growing American economy by 2013 the actual budget deficit had fallen by over 40 per cent since 2010. In the stagnant UK economy, it had dropped by only 31 per cent. Osborne was borrowing £217 billion more between 2011–12 and 2015–16 than he had said he would just three years before in his June 2010 emergency budget, £539 billion against the £322 billion forecast. Austerity had left Britain’s budget deficit 68 per cent above target.

In 2012–13 George Osborne’s first target deficit (the cyclically adjusted current deficit as a share of GDP) turned out twice what he originally said it would be: 3.6 per cent in 2012–13 compared with 1.9 per cent forecast in June 2010. By 2013–14, according to the Office for Budget Responsibility (OBR), it was expected to be four times what Osborne planned in June 2010: 2.9 per cent against 0.7 per cent forecast in 2010.