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In 2010 the government set out its deficit reduction plan. The aim was to reduce the amount the government borrowed each year through tax rises and expenditure cuts and they dared to hope they might start repaying debt by 2015.This plan lies in ruins and yesterday it was revealed that so far this year the government have borrowed five billion pounds more than they planned.
There are good reasons for this situation. In 2010 everyone expected growth to be much higher than it proved to be. The government were, as they must be, more optimistic than others, but the slowness of the recovery worldwide has taken its toll.
When the economy shrinks the automatic stabilisers kick in. Government tax revenue falls and expenditure rises. While this moderates the depth of any downturn it has the exact opposite effect to the planned the public finances
The linked Guardian editorial highlights the difficulties of achieving all macroeconomic aims at the same time. The government needs economic growth but the measures it could take to promote this in the short term will cause the deficit to become larger. There are painful choices to be made.
