With the positive news that we have just had our biggest July budget surplus in 18 years, it’s worth reflecting on how we got here, and what a remarkable effort it has taken to restore health to our financial situation. Much more to do, but good progress.
When the global financial crisis hit in 2008 almost every country was affected, but few major economies were as poorly prepared to weather the storm than the United Kingdom after a decade of appalling oversight of the country’s finances by the then Labour Government - while some countries had used the good years of economic growth to pay off debt, Labour used those same years to raise borrowing and spending, exposing us to the crash in a totally irresponsible way.
When the Conservative coalition came to power in 2010, the UK was running a deficit of £163.4bn (10% of GDP) – this was the amount that would be added on to the national debt which that year already stood at around £1.2 trillion (just over 75% of GDP). The size of the deficit (where the Government spends more than it raises through taxes) has been reduced every year since the Conservatives came to power, meaning that the overspend – the amount added on to the debt each year – has fallen. But let’s be clear: as long as we are running a deficit as a country, our national debt will continue to expand. Reducing the deficit, and eventually eradicating it, had to be a goal for our nation if we were to get back to living within our means.
The coalition and then Conservative Government’s efforts to both restrict public sector spending and allow our economy to grow through reforms and cuts to taxation resulted in a deficit last year of 1.9%, the lowest since 2001/2, and a debt of £1.8 trillion (84% of GDP). It is essential that we continue our work to eradicate the deficit; only once that happens can we use any surplus to begin reducing the size of our overall debt, with the knock on benefit that the size of our interest payments will reduce, allowing us the freedom to spend more on delivering public services and investing in our future.
We are already seeing the results of this commitment to the health of the nation’s finances. Employment stands at 75.6% of the workforce with 32.39 million people in work, 313,000 more than last year. 780,000 of these jobs are on ‘zero-hours’ contracts, 104,000 fewer than last year. Conversely, at 4%, unemployment hasn’t been lower since 1975. Superb news for the millions more who now have the security of a wage.
Our economy is now much stronger than in the dark days after the financial crisis, but we can’t afford to be complacent. If we stick to this path of deficit reduction and reform that builds jobs and growth, the news of a surplus will soon be eclipsed by the far greater achievements that lie ahead. We must build our economy to be truly fit for a new era as an independent, global trading nation.