In the News Teaching Activity – what’s been happening to public finances? (Apr 2024)

Continuing the ‘update’ before exams, the ONS data for government borrowing and debt for the 2023-24 fiscal year has been published and the news is not that good for a government that may be looking to cut tax before the next General Election.

The budget deficit for 2023-24 was £170.7bn or about 4.4% of GDP. This was lower than the previous fiscal year, but higher than the OBR had forecast just last month, leaving the Chancellor less room to cut taxes than he may have hoped though the government may go ahead anyway leaving some fiscal problems for whichever party forms the next administration to solve. One reason for the rise in government borrowing was greater spending on public services and welfare benefits though the costs of debt interest and support for energy bill payments have eased. Despite the budget deficit reducing, the national debt as a percentage of GDP has continued to rise to about 98.3% - it was last this high in the 1960s. Reducing the National Debt is one of Prime Minister’s five pledges - further pre-election tax cuts may not be compatible with reaching this medium-term goal.

Government borrowing higher than forecast as doubts raised over pre-election tax cuts | Business News | Sky News

1 Distinguish between the budget deficit and the National Debt and explain how they are related.

2 Why is it difficult to reduce government spending on public services and welfare benefits?

3 Discuss the conflict between the objectives of cutting taxation and reducing the National Debt as a % of GDP.