What Is The Deficit?

What Is The Deficit?


What is the deficit, and what is the debt? And why does it matter? The deficit is falling this year! Getting the deficit down Budget deficit Don’t deal with the deficit Running an enormous deficit Tackle the debt and the deficit left behind
by the last Labour government You’re going to hear a lot in this election
about the debt and the deficit. Even some politicians can’t get their heads
around the big numbers involved. You haven’t got an equivalent number for
the conservatives, have you? Well do we do, we do have a number…
What is it then? Well as I’ve said we’re spending £150bn
more in infrastructure. We’re going to spend a lot more money on
the police. But that’s not the total number is it? I’m not going to bandy around figures. Right. The deficit is when the government
spends more than it collects in taxes in a year. So it’s a bit like an overdraft and at the
end of the year the government has to turn it into a long-term loan. All parties agree that you shouldn’t run
day to day services on an overdraft. You need to pay for them with taxes. Labour says: tax the rich, property speculators,
companies, to pay for hospitals, schools and local council services. The Tories – well they represent the rich
and the property speculators – so over the last decade they’ve cut public spending
by £41bn in real terms. Please leave my town I will very soon Everybody agrees now: we need to spend more
on GPs, on hospitals, on council services – but these cost money. Labour wants to raise that money through tax. The Tories – well they won’t say where any
of the money they’re promising comes from. And yet you can’t tell me what the equivalent
number is for the conservatives. Well we had a budget last year which set the
parliament so all those figures a public. No but we’re interested in the next parliament,
aren’t we? The election is happening. What are the plans
for the next 5 years? So all the money that we’ve spent in the
last year… we had a budget. Fiscal Phil says fiscal rules OK. But what about the debt? Labour is promising to borrow £400bn over
the next 10 years to build new homes, hospitals, rail and green energy systems. That’s more like a mortgage than an overdraft. And this is how it will work: The government will spend an extra £25bn
a year on wind farms, home insulation, eco-friendly transport systems. And on top of that, for the first 5 years,
£30bn a year to invest in schools, hospitals, and new council homes. Now that is a massive amount – it’s double
what the Tories plan to spend. But to most families a mortgage is also a massive amount,
and at the end of it, you have a house. People ask, rightly: how are we going to pay
it back? The answer is – it’ll take a long time, like a mortgage. The way you shrink the debt is to grow the
economy over time. But what matters in the short term is the
interest rate. And it’s here that this country has a golden
opportunity. It’s never been cheaper for governments
to borrow. In fact, interest rates on government debt
are so low that central banks, like the Bank of England, are urging governments to borrow
and spend even more. If we borrow money now, on the cheap, we can
create tens of thousands of decent jobs, renovate our country and – in the process – stop climate
change. If you’re still confused – hit the comments
button. All the figures we use are checked and from
official sources. And we’ll be making a few of these videos. So in the next one I’ll be asking: If the
rich can move their money to the Bahamas, how do we get them to pay more tax?

38 thoughts on “What Is The Deficit?

  1. Could you do a video on MMT, and why you think it is not right? it is becoming quite popular on the left, but I haven't seen any left critiques of it.

  2. I love how Novara/ Channel 4/The Guardian etc is in denial about the fact it is a MSM Globalist outlet. In their minds they're edgy radicals living on tins of beans, huddling by a candle discussing Derrida

    In reality they have 6 figure salaries and peddle whatever party lines Neo-Liberalism wants.

  3. If you nationalize public assets, you can add profits generated to the overall government revenue. Like the London tube. It's generating money, thus reducing the strain on the deficit.
    The conservative economic model has been to privatize public assets and cut taxes. So where is the government supposed to get their money from? The deficit has risen astronomically under the Tories and they are still cutting budgets for public services. It's like they have never played a game of Monopoly. We've sold off all of our hotels, houses and streets just to pay other players!

  4. The problem with "borrowing on the cheap" as you phrase it, is that this will trigger higher rates of inflation, meaning people's savings will lose their purchasing power.

  5. The new Labour government will also have to raise taxes to pay for many things. Are there any plans for radical transformation of the tax system? For example calculating council tax based on EPC, widening out and increasing car road tax so that the polluters pay? And or have an incentive to improve their use of energy? Will Labour reinstate the fuel duty escalator? Lower or no VAT on renewables and insulation? Alter tax system to favour repairing all types of equipment rather than replacing?

  6. I worry Jeremy Would Happily Break UK Up Himself he would give in to nationalist be it SNP or Sinn Fein, Plaid, You Can Keep UK together Just need Power in the Centre North West, Health policy needs to be Health in First place not Reactionary, The People Are Watching Novara

  7. So the Deficit in effect turns into National Debt at the end of each year? Does the Labour Party intend to run a balanced book on annual spending/income from taxes then? I thought this was practically impossible to achieve? Also are the Labour Party thinking of creating debt free money to finance their investments into public infrastructure or are they still intending to do it all by borrowing and paying (lowish) interest? Why would they choose to do the latter rather than the former?

  8. The rich can't move their money to the Bahamas, and they don't ……Those structures are legal fictions, there is no buried treasure on Caribbean islands, to which the people of these islands will attest to, as they are poor, but the fiction throws a little money their way….The treasure is really buried in London, a playground of the rich; and in that playground, the rich kids get shaken down for their lunch money. You know, if you don't tackle the problems of child poverty, decades later all your money can do is build a prison cell, and whoever is in that prison cell, is not going to be producing resources that can be redistributed. I am all for scalding the rich, but they are not hiding millions of hot school meals for children.

  9. Sorry, Paul..I prefer the Modern Monetary Theory explanation of deficits. Therein, taxes do not pay for stuff…Instead, taxes support the sovereign currency value. The other older reason for taxation was to tax the rich so they cannot have access to resources and use it to usurp the Sovereign. In the Modern era, the aim of taxation was/ought to be to reduce the power of the 1%…to tax 'em till the pipsqueaks!

  10. As a country, if you have your own currency, then – technically speaking – to 'borrow it' makes no sense…

    The UK govt controls/issues £Sterling

    E.g: you don't need to borrow back your own IOUs, you just write new ones.

    Th central bank is an arm of the state.

    Govt bonds are *not* like a mortgage.

    Today, a govt with its own currency – rather than the central bank servicing spending direct – uses (and pays) the banking system to auction its debt to private sector buyers as part of the payments system.

    Private pension funds love govt debt because a govt like the UK **can always pay what it owes** due to the fact that it prints its currency – it doesn't need to 'earn it'.

    Taxation is the establishment of a base demand for the currency – without taxation the currency is worthless.

    Citizens (no matter how wealthy), businesses, councils, even banks and hedge funds all **need the currency – because everyone has tax liabilities. The govt does not.

    The govt can buy anything for sale *in its own currency* – that is the only real terms constraint on govt spending; are there people willing/able to work; are there assets/equipment for sale?

    This video is simple and effective, but wrong.

    It is a misleading understanding of how the system actually works in the UK (and countries with their own central banks: US and Japan, etc).

    This video describes the situation in €zone countries: countries that *do not* control their own currency – such as France, Germany, Greece and Ireland.

  11. It’s all well and good talking trash about “property speculators”, but it’s precisely these historically low interest rates that lead people to speculate on stocks and property in the first place. How else are they supposed to preserve the value of their savings?

    Low rates are great for Governments with huge amounts of debt, but they’re terrible for individuals, particularly savers and the working class as it leads to asset price increases.

    How do you help the poor? With sound money. Save in Bitcoin!

  12. Paul Mason with a Novara series of shorts on economics? When people like that say things like that, that gives me a fucking hard on.

  13. Very interesting Please people vote Labour and let the money come back to the people and the services we need the rich must be stopped from paying no tax sick of there greed

  14. Politically speaking, I'm homeless and looking to be convinced. This is a good start, for once somebody is talking about the national debt. But. How much is our national debt right now, how much do we have to repay each month and how much is the interest on it currently? Paying back interest is an appalling waste of money – I'd have three houses by now on all that interest I'm really bad with managing money and I have learned the very hard way, that getting into debt is a fools game. Interest rates do not remain stagnant and not having a well paid and consistent income is realistically going to be my scenario in 3 years time and many others too, I am sure. My bank is constantly shoving credit card offers down my throat but I know this is not in my best interests because… I don't have any way of paying it back. Many people in this country are on their knees, reliant on free housing and all sorts of benefits. This significant portion of society, along with pensioners, barely contribute any tax at all.

    Employment figures are fudged by the government so they can place them in any other grouping so that they don't have to count them as unemployed. I don't think anyone has a true idea of what the employment figures are. Spending a fortune on giving everyone a free higher education when there aren't jobs is pretty pointless. A job that pays so badly that you can't afford to take it can't be considered 'a job'.

    I do not support free education for people who can easily afford it. I don't support free anything for people who can afford it! I have paid for a great many courses in my adult life and the quality of many of those courses was absolute dumbed-down crud. I resent the notion of all that money being borrowed in the first instance and then paid to 2nd rate vocational colleges and private educational institutions. Conversely a high education is going to give many of those people the opportunity to get highly paid jobs in their lifetime and they will have a good chance of being able to pay off their loans. The education system would need to be greatly improved, with realistic course content, to get my support on that. Noah Yuval Harari predicts the near future won't have a requirement for most of the jobs as we currently know them and that people/kids should be preparing for a completely different way of worklife and that means different courses / education.

  15. Why isn't Paul Mason a Politician? He is the kind of person I want to see in the Parliament. Knowledgeable, Honest, Caring and Left! What more can you ask from a Politician?

  16. It is great that everything seems to be costed and in a lot of ways show more credibility than the conservatives. But on this subject of deficits could you explain what the thinking in a little more detail. I am in the understanding that running a deficit is not always a bad idea in fact the economy needs someone to dissave if there is such a word. Steve Keen explained very clearly how he would of spent into the global financial crisis which would of brought the economy back into balance. While the conservatives seeing the world through neo-liberal eyes cut making the whole situation even worse worse and more painful for the man on the street. My question is where is the sweet spot and what is the right amount of deficit to run and on what admittedly you touched on this here but can we have more explanation. More detail would help me defend and promote Labours positions thank you 🙂

  17. Generally good video Paul. I think your analysis of whether borrowing is a good idea or not is a bit simplistic though- specifically, borrowing and investing £400bn does not guarantee economic growth, meaning that having that level of debt may not be as harmless as you make out (we already pay approx 5% just to service our debt, so just imagine how unsustainable that level of extra borrowing could become).
    More problematically though, you completely miss out the point of who the government would be borrowing from- wealthy individuals who have so much money that they can lend to the government. It’s obviously in the interest of the wealthy to lend to the government and receive interest on their wealth rather than have to pay the same money to the government in the form of taxes. However we are more than wealthy enough (the amount of private wealth in the UK is approx 5-6 times GDP) to fund a large increase in spending through a wealth tax as such, and avoid massive borrowing, and I don’t think Labour or any party is talking about this enough.

  18. They don’t want to make transparent the financial situation. Otherwise it’ll be in plain view – it’s going to tax havens.

  19. Underlyiing Paul's explaination is oversimplified thinking about government finances. That they work like a household budget. They don't. Government debt is financed by long term government bonds (issued to all kinds of institutions like pension funds and insurance companies) These financial assets are later purchased by the Government in the guise of the Bank of England using money created out of thin air. Effectively, the government prints money to finance its spending. It just does it in a slightly covert and delayed way. There is never any need for the government budget over the long term to match net spending with net taxation. The reason for taxation is not to facilitate spending, which the government can effectively print money for. The reason for taxation is to force the use of the national currency to help it retain its value and avoid inflationary pressures. If you've followed the news about qualitative easing post 2009, you will realise the description – the household budget model – used by almost all politicians, economists and officials is a fudge. When Paul Mason points out historically low interest rates are an opportunity to borrow cheaply for big government projects he is actually saying inflationary pressure are at an all time low and the government has license print lots more money (in the future) without detrimental effect on macro economic indicators like inflation. You may feel uneasy about this reality but that's how it works. Look up Modern Monetary Theory for more information.

  20. Jesus Fucking Christ interview Bill Mitchell or Stephanie Kelton already. The U.K. has a sovereign currency. Y'all can print out as much money as you want. The debt is just a measure of how much the public has in savings. If you got rid of the debt you wouldn't have any money anymore.

    God. Damn it.

  21. all this worry over the deficit on a fiat currency baffles me. worrying about the debt is like playing checkers while the 1% are playing chess with the real resources

  22. The deficit does NOT have to turned into a long-term loan at the end of the year. That – selling govt bonds – is done to temporarily remove excess cash in the form of BoE reserve funds to control interest rates. (Reserve funds are money the banks have not transferred from their Bank of England accounts to their customer's accounts yet.) The BoE pays lower interest on reserve funds than the market rate. So inter-bank borrowing will always pay interest between the BoE's reserve rate & the market rate. Competition between banks drives the interest rate down to the reserve rate, so to keep it at the market rate, the govt. sells bonds to drain some of the banks' reserves. It's complicated & if you want to know more I can forward you a chapter on it from economist Phil Lawn.

  23. Who are you borrowing from? Those who already have money, probably because they can afford to avoid taxes. Taxes will pay will pay back the debt to the rich eventually. Why not just pay for infrastructure and public services with taxation to begin with? Because the poor can’t be taxed, because middle income people shouldn’t be taxed, because the rich will take their money elsewhere. In either case the rich win, and inequality grows. Yes, society as a whole receives a dividend, but the dividend is inordinately greater for the rich.

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