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What is the deficit?

The deficit is the gap between government spending and income.

By New Statesman

If a government doesn’t raise enough funds – mainly through taxes – to meet what it spends, it results in a deficit.

A deficit is often a symptom of a recession, as more money is spent on help such as unemployment benefits or even targeted bailouts to private companies (such as the money given to UK banks in 2008, which totalled around £500bn).

To make up the shortfall, countries often borrow money, creating national debt. The deficit is therefore an indication of how a country’s finances are doing in the short term; the national debt is a longer-term picture.

During the first financial quarter of 2015, the UK government debt amounted to £1.56trn, over 80 per cent of GDP.

The deficit in the last quarter of 2014 was £25.3 billion, down from £27.7bn in the third quarter. (Source: Office of National Statistics)

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