How have the Budget Deficit (or Surplus) and the Borrowing Requirement Changed in Recent Years?

Before the 1930s UK government believed that there should be a balanced budget as it was their moral duty. This is known as sound finance or fiscal orthodoxy. It was seen that a budget surplus was the same as steeling from the taxpayers and if they ran a budget deficit it was perceived as they were bankrupt and unable to manage its finances. As both the budget surplus and budget deficit were seen as undesirable the government felt it was their duty for a balanced budget.


In the 1930's economist John Maynard Keynes legitimised deficit financing, but it wasn't until the 1970's that the view of monetarist economists returned the belief to having a balanced budget. Keynes believed that the great depression hat caused by cyclical unemployment as in the economy as a whole there was too little spending as individuals and firms were saving too much. He argued that running a budget deficit could be financed by government by borrowing, then using its public sector programme and then spending the private sector's excess savings. Injecting spending into the economy and gets rid of the cyclical unemployment.