Fiscal Policy Revision: Focus on UK Government Debt

The government issues debt to help finance a fiscal (budget) deficit. The budget deficit is the annual amount the government has to borrow to meet the shortfall between current receipts (tax) and total government spending (G). George Osborne has two fiscal policy targets built into legislation:

1. For the budget to be in surplus from 2019-20
2. For government debt to fall in relation to GDP every year until then

According to the UK Office of Budgetary Responsibility (OBR), UK government net debt is expected to rise in cash terms every year, but to start falling as a percentage of GDP from 2016-17 onwards. It reaches 74.7 per cent of GDP in 2020-21.