Public debt rising

The government wanted to reduce the level of annual government borrowing (the public sector borrowing requirement - PSBR) and reduce the proportion of government debt to GDP.

Last month the government borrowed £14.4 billion, well above the projections of the recent budget let alone the 2010 budget plan.

It now seems certain that the government will not meet its debt reduction or deficit reduction targets. But is this really important.

The arguments for deficit reduction are based on reducing the tax burden on the economy and keeping borrowing costs low (for example in Greece all borrowers pay very high interest rates because of the Greek governments excessive debts). That will aid long term growth.

The reason why the Governor of the Bank of England says it is okay to miss the debt targets is because of low growth world wide. If the world does not grow then the UK is unlikely to grow very quickly either. Therefore tax revenues are lower than expected and government spending is higher (on benefits for example).

Some people say that the government should spend even more to boost short-run growth. The same people ridicule the overshooting of the debt target. Am I the only one who finds that odd?

The Guardian explains the debt situation here