Defintions

Public sector deficit:
The annual deficit is the extent to which the government spends more in various ways than it receives in its various kinds of income - largely taxation. The figure has been rising for a few years from a few billions of pounds to a figure for 2009-10, just before the election?, approaching £200 billion.

This figure has grown as more people are out of work, or have left the country, and so pay less income tax. Company tax has fallen as profits declined, and VAT receipts and stamp duty as people buy less. Conversely government outgoings rise, not least because the extra registered unemployed will qualify for benefits.

The National Debt:
The debt is the accumulated deficits, less any reductions from surpluses. (G. Brown, while still admiring Prudence for 2 years , reduced the debt, but then blew it all). The debt is essentially government securities held in this country, - by individuals but mostly by corporate bodies, and overseas by similar groups. These holdings are to provide a return large enough to overcome any perceived risk, or for legal or accounting reasons, such as to provide banks with a cushion if they run short of cash or liquid assets.

There is also a potential or contingent debt because of the huge amounts to be paid when the Personal Finance Initiative costs have to be found. These are in effect long term i.o.u's which G. Brown loved when chancellor because they gave extra credit to the government without it appearing as an item on debt or deficit.

The government, of whichever political colour, over the next few years has to get to grips with the problem of debt which has risen so high that it is in danger of offering too much risk to foreign potential creditors. They may fear currency depreciation, which means that the same sterling amount will return to them less in their own currency subsequently.

It is refreshing to see that G.Brown seems at last to have recognised the problem, as the Queen's Speech promised a law to reduce our annual deficit by half within four years.

Who will enforce this law if the government fails, is not clear. Will it prosecute itself? It is window dressing design to catch out the Tories.

Even if the next government succeeds in halving the deficit to about £100 billion annually, over four years the debt will have grown by perhaps £300 billion, even if rapid growth follows. This means that the government's payment on interest will eventually be increased by perhaps £10 billion annually, until it can bring us back towards surplus, which means perhaps two pence on standard rate tax which will already be much higher because of previous debt.

Brown is right to aim for at least a 50% reduction, although passing a law will do little to achieve this, but it has to begin soon or creditors may make things much worse.