Go Figure: Just how big a slice of pie is £6.5bn?

 
Pie

The major parties in the UK claim to have very different stances on tackling the deficit but does the numbercrunching bear that out, asks Michael Blastland.

A favourite daft question for challenging numbers in public argument is: Is that a big number?

So a number like £6.5bn might be huge, or it might be about £2 a week each, which is what you get if you divide it by the population and the weeks of the year.

Just as usefully, we can use the size question on people who want to sell us big ideas.

So one side might talk of economic "freedom", the other of "equality". But when it comes down to it, does the difference in policy between the sides of "equality" and "freedom", turn out to be a few quid a week?

Whatever uses you could find for £6.5bn, in the context of the whole UK my share is not going to make me free, or unfree.

Ideas in politics are about more than money, of course. But when everyone seems so concerned with the bottom line, it's funny how many big political words stand on relatively small numbers.

Take the hot issue of the day, the pace of government cuts. One side talks of credibility, pulling Britain back from the brink, the other of cutting too far and too fast, squeezing the life out of the economy.

This will annoy just about everybody on all sides, but here goes anyway - are the differences in policy a big number?

Here's one way to see it.

Pie chart

The whole pie chart represents the size of the UK economy, the value of everything it produces in one year, roughly £1.5 trillion. This is overlaid by a green segment representing the accumulated public sector net debt over many years - equal to about 67% of the size of the economy.

And the thin sliver that overlays a bit of both is my rough guess of the bottom-line policy difference between the parties this year, a difference that is either - take your pick - squeezing the life out of the economy or pulling us back from the brink.

Really? Given a chance to eyeball the proportions, what do you reckon?

What's more, the problem of not knowing the knock-on effects of cutting or spending means that the sliver's full effect on the size either of the whole economy, or on the relative size of the debt, might be even smaller than it looks. Not every extra pound spent adds to growth. Not every cut helps the budget if it also shrinks the national income.

What do you think - shall we cut the sliver in half?

Its size is already a rough guess, by the way, because the bottom line difference between the parties is hard to calculate or even define.

What we do know, for example, is that Labour would cut VAT and says this is worth/would cost about £11bn, and in financial terms this is the biggest of its policies. The Conservatives say Labour's plans would add "more than £20bn" to spending or borrowing. Labour says the cost would pay off by stimulating economic activity. And so on.

For my sliver, I've plucked from the air the figure of £15bn.

Estimates vary - naturally - of what an extra £15bn would do to growth. Some think nothing, or worse. Others say it would add about 0.5% to GDP, though it might increase borrowing costs. "'Fiddling", the Institute for Fiscal Studies called it.

This is not to provoke argument about which policy is best, we have plenty of that already, or to argue about whether public spending is good or bad, just to ask if the choice on the table will make a difference commensurate with the rhetoric or, if not that, since we hardly expect proportion in politics, how much the whole economy would notice in the end.

Throw in the fact that the margin of error on official forecasts of GDP and borrowing is often wrong by more, sometimes much more than any of this, and you might say - if you wanted to cause trouble - that luck turns out to be far bigger than political principle.

Of course, even small differences would be worth it - if we could be sure of them. Our sliver is uncertain in more ways than one. And the differences between the parties could be bigger if the parties wanted them to be bigger. There exists a wider range of views than expressed in front-bench politics.

Furthermore, if they carried on with this difference over a long period, it would add up. But even outside politics, among academic commentators, say, it seems easier to talk about "stimulus" versus "austerity" than to put practical numbers on the difference.

Perhaps the argument is less about moving the whole economy than whether some of us should pay a bit more to make other people's lives a bit easier.

Note: The figure for the stock of net debt here excludes financial sector interventions.

 

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  • rate this
    +1

    Comment number 28.

    The article does not compare like with like: the economy in one year with the size of debt over many years. How woolly is that? Extremely poor analysis. I yawn......................

  • rate this
    +2

    Comment number 27.

    AshleyB9 may know some economics, but money taken out of the economy in tax does not disappear. It is also spent on things or given to needy people who spend it- both of which put it back in circulation. the only thing that takes money out of circulation is saving and arguably even then the people who hold the savings also spend it while they have it. Only under the bed stops the multiplier.

  • rate this
    +1

    Comment number 26.

    A cut in vat would certainly stimulate the economy (The economies of the countries who make the things we would buy at the reduced prices). So the German carmakers, the Japanese electronic manufacturers, and the Chinese everything else will be cheering Ed on.

  • rate this
    -1

    Comment number 25.

    Re #20 @AshleyB9

    Quick economics lesson, money does not discriminate, 100 quid spent by the government then gets re-spent by the person that receives it.

    Hoarding money as the corporates and banks are currently doing, and govt/corporates paying down debt to overseas interests are the things which subtract from the economy.

  • rate this
    +2

    Comment number 24.

    You could argue the same about paying a little extra on your mortgage, and it would be invalid.

    Paying a small amount extra off a debt gets the debt repaid much much faster - see compound interest.

  • rate this
    -2

    Comment number 23.

    Ultimately, the issue is not a pie chart, its not about statistical fudging or even about deficits. It's about people. People made jobless. People made homeless. People who send their children to bed hungry as they can only get their free school meals. £15bn may be a sliver of the total economy but its a lot of money and the crux of the arguement is about getting our economy growing.

  • rate this
    +1

    Comment number 22.

    "13.Sane or not
    1 Hour ago

    As I calculate it (roughly) for every £100 the country makes, the government takes £40 and spends £50.

    Which obviously can't go on."

    Why not? Rather than looking at spending, why not concentrate on revenues, such as the £25bn or so a year the likes of Vodafone and Top Shop avoid every year? And what about all the other avoided/evaded tax?

  • rate this
    -2

    Comment number 21.

    What we need in england is brains and no more silly graphs. But while you have 3 percent of the country that holds all the wealth and power. We will always struggle with debt, As its not there money. The chancellor should be some one who has run a billion pound company. And not a politician who would struggle to run a bath.

  • rate this
    0

    Comment number 20.

    Quick Economics term for you all, "Multiplier". If £100 is spent in the market place, that then gets re-spent by the person/company that receives it. In the end it is actually worth a lot more (Say £500). What takes that "out" of the economy is that taken by Govt in Tax, etc. As such, less taxation = More money in the economy. Labour should have learnt that before coming into power in 1997!

  • rate this
    -1

    Comment number 19.

    Interesting throwaway line at the end "...........excludes the financial sector interventions"
    If these "interventions" include bank bailouts, QE, etc, can someone remind us just what these interventions cost us? It would be interesting to see how big a slice of the pie that would be...

  • rate this
    +2

    Comment number 18.

    I wonder what that pie is ? it looks like corned beef and potato, delicious!
    oh sorry did I wander of topic ? its just that im getting rather bored with more tales of the economy..

  • rate this
    -2

    Comment number 17.

    I find the "pie chart" illustrating this almost impossible to read. Is the whole economy meant to be the complete circle? Why is the debt segment shifted? Of course, reading the text I can understand what is being described, but the diagram should be self-explanatory.

  • rate this
    +1

    Comment number 16.

    The deficit is not like a slice of cake. A slice of cake is a one-off product. The economy is much more like an oil-pipeline. If you use up borrow and spend too much too quickly you have much less available in the future. That is why we need to be responsible with spending today. For our children's sake tomorrow. Remember them. Don't be greedy.

  • rate this
    0

    Comment number 15.

    12.

    The average salary is £21'000 ish in the UK. And higher unemployment than in the last 16 years (reported this week) ...so your figures maybe somewhat further out

  • rate this
    +1

    Comment number 14.

    "The bottom line difference between the parties is hard to calculate or even define".

    This is just one of the areas where politics and politicians are failing the nation. After all this time and after all we have beeen through "Together", the reds and blues still cannot tell us in any meaningful way, exactly what differentiates them from each other.

  • rate this
    0

    Comment number 13.

    As I calculate it (roughly) for every £100 the country makes, the government takes £40 and spends £50.

    Which obviously can't go on.

    £16 on benefits, £8-9 on the NHS, £5-6 on education.

  • rate this
    0

    Comment number 12.

    For every £1 the government saves in wages, based on an average wage of £34000 gross and tax code of 747L, they loose 11p employer's NIC. 9p employee's NIC and 16p PAYE.

    Add to that an average job seeker's pay out of 17p.

    My sums make that a cost to the exchequer of 53p

    All of a sudden the £1 becomes 47p

    Add to that the redundancy payout and to £1 becomes quite small.

  • rate this
    +5

    Comment number 11.

    If the slice they are arguing about is £15bn as this suggests, then what about the £1bill a year that goes on people scamming welfare, or better still the £70Bn, yes, SEVENTY BILLION that is avoided in tax by the top 1% in this country every year. Oh hang on, their friends of the government thats why it'll sit with us

  • rate this
    0

    Comment number 10.

    I thought this article was literally about a very expensive pie.

    Imagine my disappointment to find more dull debt talk.

  • rate this
    +8

    Comment number 9.

    Any idiot could add policies which increase spending and add to the treasuries coffers and take away money from organised crime.

    Legalising certain drugs (which are proven less harmful than alcohol) and also the sex industry would create billions extra in tax and move it away from un taxed gangsters who then use the profit for other activities.

    Its a shame politicians don't have the nerve.

 

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