It's the same as a family with earnings of £26,000 a year who are spending £32,000 a year. Even though they're already £40,000 in debt. Imagine if that was you. You'd be crippled by the interest payments. You'd set yourself a budget. And you'd try to spend less. That is what this government is doing.
But wait a minute. Let’s take him seriously and imagine exactly that situation.
Would you think to yourself: ‘Yikes! We’re spending about a quarter more than we’re earning and the loan interest payments are mounting up! How can we deal with this debt crisis? Well, here’s the solution: next year, we’ll spend 20% more than we earn. The year after, we’ll overspend by 14%. Then by 9% and then by 5%, and so in 2016 we’ll only be spending 3% more than we earn. That’ll sort us out!’
No, you wouldn’t think that. You’d act a lot more urgently.
The above (as if you couldn’t see this coming) is the government’s timetable for deficit reduction. Their actions prove that they don’t for a minute believe their own rhetoric.
So, intuitively compelling as the analogy is, the government’s finances are nothing like those of a household. Or else it’s a pretty funny kind of household:
- It can borrow at well below commercial rates.
- The worst thing at all likely to happen to it – in an unexpected once-in-a-century calamity – would be a 6% fall in its income (that was the change in government revenues over the two years from peak to trough).
- It is in effect immortal, and has indefinitely long to service its debts, paying some off and rolling some over.
- A lot of the money it’s borrowing is going to subsidise the family firm while business is slow, which helps to generate income.
Update: Patrick Osgood also deplores the use of this domestic analogy by deficit-phobes.