Making the Boring, Not Boring; the Deficit and the Fiscal Charter explained simply

Seems like we’re “generation debt”: all we hear is student loans, overdraft and stuff about UK’s budget deficit – which is apparently around £90 billion… but what does this actually mean?


What is the deficit?

The Deficit Decoded; the gap between what the government spends and what it receives in tax

The Conservatives want a surplus by 2020. Achievable?

The deficit is the gap between the amount the government spends and what it receives in taxes. It’s different to the national debt which is the total £££ the UK owes to investors from the UK and other countries.* (FYI we owe a lot to America).

Each year the government spends money on things like schools, the NHS, the army and benefits. This money mostly comes from taxes collected by HM Revenue and Customs.

The Chancellor of the Exchequer (currently George Osborne) is in charge of the country’s finances. They set the budget each year which outlines how much we pay in tax, and what gets spent where (we explained how the budget works here).

* For more information on who the UK owes money to take a look at this BBC report and blog post by Sky economics editor Ed Conway.

How it works:

If one year the government collects £100 in tax but spends £150, then the deficit would be £50.

Alternatively if £100 is collected but only £80 is spent then the government would have £20 left over at the end. This is called running a budget surplus.

In real life we’re talking a lot more money than this. The UK deficit is currently around £90 billion.


Is running a deficit normal?

Since the global financial crisis of 2008, “deficit” and “borrowing” have become dirty words. Understandably, the public don’t seem to like the idea of irresponsible governments overspending.

How the financial crisis happened;

Financial crisis in a nutshell; the banks ran out of money – the government had to lend them money.

Find out more about why the government had to bail out the banks; the financial crisis explained

The Conservatives claim that the current deficit is all Labour’s fault, as the previous Labour government was running a deficit at the time of the financial crisis. Expect to hear this a lot around election time.

Considering all this, it may surprise you that running a deficit is the norm for a lot of countries.

Whilst it is true that Labour was running a deficit before the crash, they had previously ran a budget surplus between 1998 and 2001. Before that point the UK (under Conservative rule) had run deficits each year since 1975 (with the exception of three years between 1988 and 1990 where there was a small surplus).

Which governments ran deficits?

UK budget deficit and borrowing by Mark McCormick for the Guardian  Deficit, national debt and government borrowing - how has it changed since 1946? VIA FLICKR

Labour aren’t the only party to run a deficit – UK budget deficit and borrowing by Mark McCormick for the Guardian Via Flickr


Many well-respected economic experts like former Bank of England governor Mervyn King and senior Treasury official Nicholas Macpherson suggest that the banks are more to blame for the current situation, rather than Labour overspending.

However, increased government borrowing during the crisis (partly to save the banks, partly to pay for benefits as more people lost their jobs) meant the UK deficit shot up from around £34.5 billion to £90 billion and continued to climb. Ouch.


Austerity Measures vs ?

The Conservatives promise to cut the deficit and deliver a budget surplus by 2020.

Chancellor George Osborne’s austerity programme was supposed to bring the deficit down. In simple English: lowering government spending. Some of the austerity measures have proved controversial; such as cutting tax credits.

Rather than making cuts, some argue there are other methods to reduce the deficit. This include closing loopholes so that big businesses and non-doms pay the right amount of tax, and investing in public services.

The economist JM Keynes suggested something similar during the Great Depression of the 1920s. The idea was use unemployed workers to work on public projects. The workers would start spending their wages, which would get the economy moving again.

Is the Conservative 2020 deadline achievable? George Osborne’s original plan was to eliminate the deficit by 2015, but missed this target; managing to reduce the deficit by half.

This means that although public spending is coming down, the UK is still overspending and doing nothing about our national debt.  Are you sitting down? The UK national debt is currently around £1.5 trillion. Wowzers.

Global Debt

Deficit; UK debt as measured by GDP

In the red; government debt as a percentage of GDP… the debt-to-GDP ratio is the ratio between a country’s government debt and its gross domestic product (GDP). A low debt-to-GDP ratio indicates an economy that produces and sells goods and services sufficient to pay back debts without incurring further debt.

Don’t panic though – the International Monetary Fund thinks the UK can survive with high levels of debt forever. Phew.


The Fiscal Charter AKA George Osborne’s plan to save the UK economy.

George Osborne Chancellor of the Exchequer Outside 10 Downing Street

Chancellor George Osborne wants to make it law to run a surplus

Current Chancellor George Osborne has created the Fiscal Charter. It’s a proposed new law which bans the government from creating a deficit in “normal” circumstances. This is defined as when the economy is growing healthily.

On paper this sounds like a sensible idea, no?

However, if the charter is passed it would make it harder for governments to borrow money for public investment. Why is this bad? Labour List explains in language we can understand:

“No one thinks it is wise to max out the credit card to pay for the weekly grocery bill, but just as families have a mortgage to pay for their home, so it makes sense to borrow for the infrastructure – like broadband, transport, scientific facilities for universities – which will increase our economic productivity and growth.”

However, perhaps it’s not a good idea to compare economics to your household budget;



So, what’s the answer? Suggestions on a postcard, please.


Deficit learnings; the current motto is “don’t overspend”, but it wasn’t always like this.

It’s hard to know who to believe. It’s even more confusing when politicians disagree over whether spending more than your income is good or bad.

What we do know: lending and borrowing is risky, so you had better be sure people can pay it back.

Will the Fiscal Charter work? Think we’ve missed something? Let us know in the comments below or email


The Housing Crisis and How You Can Escape It


Affordable housing is one of our biggest concerns. Prime Minister David Cameron promises to build 200,000 new starter homes for new buyers… wait, aren’t we “generation rent”?


OK, explain the housing crisis to me?

At the moment there is a lack of affordable housing across the UK. This lack of homes is pushing the price of houses up, up and up – meaning fewer people are able to buy their own home. There are a number of reasons why this is happening. The government builds way fewer houses than it used to in the 1960s and 1970s. The Conservative government in the 1980s led by Margaret Thatcher sold off council houses under the “right to buy” scheme. The scheme was a popular policy, but critics claim it created a shortage of housing. Another major reason is that planning permission for houses takes a long time to be granted. Not all permissions lead to houses being built.

Prime Minister David Cameron just promised to build 200,000 new homes which will be available for people to buy.

“Those old rules which said to developers: you can build on this site, but only if you build affordable homes for rent …we’re replacing them with new rules… you can build here, and those affordable homes can be available to buy.”

Whether this is achievable is uncertain… in 2007 the Labour government set a target of building 240,000 homes a year. Admirable idea… but they failed to meet this target. Even if the government hits this target it may not solve high rents. The Guardian reports that offering subsidies (benefits usually in the form of a cash payment or tax reduction) to builders creating more homes has actually made things worse.


I’d never be able to afford a home anyway?

Many call 16-25 year olds “generation rent” as rising house prices mean we are less likely to be able to afford to buy a house.

The housing crisis is also pushing up rents – even faster than the price of actually buying a house. The cost of renting a room in London has jumped more than 20% in the past five years. Landlords, rejoice.

Housing Crisis explained; London Underground Map showing average rents around the capital

Housing Crisis: compiled this awesome graphic showing average rents around London.

The average price of renting in London is now £1,500 a month; outside the capital is £751. Don’t forget that when renting you’ll also usually need a month’s rent as a deposit. Affordable for some, but not for those searching for work, on lower paid jobs or zero-hours contracts.

It would seem new affordable houses are definitely needed. However, the i100 reports that housing charity Shelter is skeptical over whether David Cameron’s promised new homes are actually that affordable. They say on the minimum wage only 2% of homes would be affordable. Hmm.


How does this affect me?

One thing is for sure; rents are rising faster than our wages. Paying more for rent means you’re unable to save as much (if at all) for a deposit or mortgage, lowering your chances of getting your own place or saving for a pension. In many countries it’s the norm to rent all your life, but in the UK we seem to want to own our homes. The result? More and more graduates are moving back in with their parents to save. There’s been a 28% increase in 20-34 year olds living at home since 1997.

Cupboard advertised on gumtree at £40 per week to rent... a sign of the housing crisis?

£40 per week? BARGAIN!

Searches for shared rooms have risen dramatically in the last few years as others cut costs by sharing a room. It takes two to tango.

The problem is that as people become more desperate for a place to live they end up forking out extortionate amounts for cramped and often substandard accommodation.

Take the single room in Clapham advertised at £800. Or the £730 per month “fully contained” flat … basically a bed in a kitchen. This “loft conversion” (see; cupboard) was posted at the reasonable price of £40 per week. The catch – there is no standing roomYour affordable halls of residence seem like a distant daydream, don’t they?


Fine, so “housing crisis = bad times”. How do I beat the system?

Warning; thinking about the housing crisis for too long may lead to nausea/anger/fear/a cold numb feeling spreading through your whole body.

However we’re practical folks here at Scenes of Reason so we’ve compiled a some ways to escape the housing crisis and jump on that property ladder.

Graphic explaining how "Help to Buy" scheme works

How the “help to buy” scheme could help you escape the housing crisis and get your own place.

The government runs a “Help to Buy” scheme which allows you to buy a house with a smaller deposit.

Under the scheme first time buyers are able to buy a property up to £600,000, paying only 5% upfront as a deposit.

Usually you’d need around 10% for a deposit. Happy days!

Explore; government help for house buyers

The government is also offering a loan to cover 20% of the price of a new property. For the first five years you won’t be charged fees on this loan.


The BBC also has a calculator which tells you where in the country is cheaper to rent or buy. However, perhaps just buying or building houses may not solve the housing crisis.

According to the Empty Homes Charity there are over 200,000 homes left empty for over six months, and over 600,000 houses empty in total. So perhaps to solve the housing crisis we should start trying to fill these houses, rather than just building new ones?


Housing Crisis learnings; Houses. People. Can. Afford.

Will David Cameron deliver on his promise to build 200,000 new homes? Will these even be affordable? How can we end the housing crisis?

Take action: If you think more needs to be done, sign the Housing Federation’s petition “Solve Our Housing Crisis”

Subscribe to our newsletter and stay tuned for our breakdown of what was said at conference. Like andFollow for regular decoded news.

6 Life Lessons We Learned From Royal Bank of Scotland

RBS Sale Explained; Why is the government selling Royal Bank of Scotland?


1) It’s called risk for a reason, stupid.

Bankers like risk.

Financial Crisis in a Nutshell: The US market had lent BIG amounts of dollar to people in risky subprime mortgages (given to people with bad credit ratings). Basically, they shouldn’t have risked so much.

People: We can’t pay back what we owe.

Banker: Oh F*^&!


2) You really should save money for a rainy day.

When people started defaulting (failing to pay back money owed) on their mortgages, the banks, like Royal Bank of Scotland, should have been able to cover the losses with their capital (AKA savings). But they didn’t have enough saved. Bummer.

Banker 1: Don’t worry, we can use our savings to pay for it.

Banker 2: Ummm, about that.

Banker 1: Sh*%!!!


3) Always have a good friend to bail you out.

The Labour government decided to save Royal Bank of Scotland  by buying up shares in the bank. This meant RBS was declared solvent (able to pay your own way) and was able to get emergency funding from the Bank of England to keep going.

RBS was now essentially publicly owned; the UK government owns around 80% of RBS shares. By pouring money into a bank bailout, they hoped to prevent the bank from failing; which would have led to job losses and depositors losing money. In total around £107.6 billion of taxpayer’s money was spent on sorting the banks out.

Royal Bank of Scotland: Hey dude, nice… yo, can I borrow some money?

Labour government: Oh, guyyyyyyys, c’mon.

Royal Bank of Scotland: Pretty please.


4) If you can’t pay it all back don’t beat yourself up.

The government spent £46 billion buying shares in Royal Bank of Scotland. Now a report by independent financial advisers, Rothschild, states that now is the best time to have an RBS sale to start selling the shares.

The small print: because the values of the RBS shares have dropped since they were bought, the government is set to make a loss of £7 billion on the RBS sale.

But because the other banks the government have bailed out have done better; the government is actually set to make a profit of £14 billion. Eventually.

Royal Bank of Scotland: Yeah, so you’ll make a loss, but in the loooong run you’ll actually have more money. #Winning

UK government: Get. Out.


5) Don’t sweat the small stuff.

Even though the government is making a profit, they will still be £7 billion down after the RBS sale. So they’ve lost money from bailing out a bank which didn’t do the best job of keeping our money safe. That’s £7 billion which could have been spent on other things.

But as we said, the government is estimated to make a profit overall. So it could be a lot worse.

UK Government: £14 billion profit? Maybe we should do this bailout thing more often.

The Public: Don’t you even think about it.

6) Blame is for stress heads.

People have blamed the bankers for the financial crash, others have blamed the government for not putting enough regulation in place to stop this from happening.

Change is coming; we explored how the new rules mean HSBC is separating its high street branches from the investment side of the bank.


Royal Bank of Scotland; word on the street… speculation it seems:

Screen Shot 2015-06-23 at 16.50.40

Do you think the government was right to bail out Royal Bank of Scotland? Should we have an RBS sale now or holding out for a better profit? Should the bankers be punished more for what they did?