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.

 

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