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First thing we seem to be getting an awful earful of is the budget deficit. What on earth is it? And how the devil does it affect me? To answer this we must understand that the government needs spends money and principally raises the funds to do so in different ways. These are mainly revenue (from taxes, investment initiatives) and borrowing. Revenue occurs from taxes, etcetera, while borrowing is through the bond markets – which essentially is the government selling bonds to investors both locally (individuals, pension funds etcetera) and abroad (international investors). The international investors are responsible for about 35% of the bonds, putting the UK on par with third world countries and subject to fluctuations in the bond market. Ratings are awarded based on the ability of any country to meet these debts (£27.4 billion for the UK last year) and therefore raised more finance on the international markets and if you default, or the markets believe you can’t meet your payments, default occurs like Greece, Portugal, Ireland with excruciating savings(cuts) being made to pay off the debt.

Last year the government spent about £671 billion from an income of about £493 billion, therefore they have overspent by about £159billion. This £159billion figure is the budget deficit and as explained failure to pay it off leads to mayhem on the global markets. What happens if we do not pay it off? Mayhem dear reader, if markets lose confidence this would greatly affect the ability of the government to raise funds on the global markets, causing the UK to lose its triple A rating which might raise interest rates on sovereign debt- i.e. the debt owed by the country. From this mayhem the country might have to be ‘bailed out’ – go to the IMF for help and their modus operandi is to demand very tough spending cuts and steep tax rises. It is never pleasurable.

Now we know what the budget deficit is we move on to how it is being tackled. The coalition government has pledged to pay all of it off in this parliament (2010/2011 – 2014/2015), while the Labour government has pledged to half the deficit in this parliament. There are two possible ways that this could happen: higher spending cuts and tax rises.

As we are in a recession, paying off the deficit is largely done through a combination of tax and spending, which for this government is 77% spending cuts and 23% tax rises. The tax rises so far have been in corporation tax (tax on businesses), tobacco, increase in VAT from 17.5% to 20%. Spending cuts have also been felt across all the government departments. These cuts have led to closing libraries, tuition fees tripling, EMA grants cut. Essentially about half a million public sector jobs will be cut.

So where are we now? The economy contracted by 0.6% in the last quarter of 2010 and growth in 2011 is projected to be only 1.7%. Meanwhile inflation has risen (to 4.4% in February), pushing up the welfare bill and putting pressure on household incomes. Watch this space dear reader as we bring you more on what promises a very exciting chapter of British history- evolution not revolution of the British economy. So when the news is next discussing the economy, you can now afford a smile of understanding.

The Cuts in Numbers:

Rail fares are rising to 3%
Higher edcation is facing about – 40%
Flood defences – 15%
Sport England and UK – 30%
Police services – 20%
Foreign office – 24%
cabinet office – 35%
Justice departments 3000 (6%) fewer prison places in four years
Department of Education – 1%
Whitehall – 6%
60% of new social housing to be cut
8% of MOD service personnel.

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It can’t have escaped the attention of even the most dazed person that recently the world’s financial markets have been in turmoil. The past few weeks and months have seen share prices tumbling, banks collapsing, and a general sense of panic emanating from those connected with the economic world. A series of  hysterical newspaper headlines, coupled with panic-filled coverage on television, have contributed to deepening the crisis and potentially leading the world into a new depression. Things first took a turn for the worse in the spring of 2007, when fears arose among US banks that mortgages they had issued to high-risk customers were unsafe, and that the banks were unlikely to get their money back. Dire warnings were issued by economists in the US, but the situation was really brought to the attention of those in the UK with the collapse of Northern Rock last year. With the news that Northern Rock had been forced to ask the Bank of England for an emergency loan, thousands of customers across the country, fearing they would lose their savings if the bank went bust, withdrew their savings, forcing the bank to close and causing the government to nationalise it in order to guarantee its future. Since then Bradford and Bingley have also been nationalised, and HBOS, one of the biggest British banks which includes Halifax and the Bank of Scotland, has been the subject of a takeover move by Lloyds TSB. In the US, major banks such as Lehman Brothers have collapsed, insurance giant and Manchester United sponsor AIG have had to be rescued with an emergency cash injection, and two banks, Fannie May and Freddie Mac, have been nationalised by the US government. Across Europe, governments have moved to shore up their markets and financial systems, with some guaranteeing all deposits in bank accounts in order to strengthen consumer confidence in the system. The most obvious effect this has had for students has been the increase in price for many goods. Student budgets, stretched under normal circumstances, have come under pressure as the basic cost of living increases while the loan available to students has stayed the same. The greatest increases can be seen in the cost of energy; electricity and gas prices, already under pressure due to political machinations from Russia, have rocketed, while food prices have climbed steadily.

So what can a student do to weather the storm? Firstly, working out a weekly budget and sticking to it is the best way to keep an eye on your finances and stretch your loan to cover expenses. Shopping at budget supermarkets such as Aldi and Lidl can go a long way to reducing the cost of food. Handily for any student living near the University, there is a Lidl located on the junction of Beverly Road and Cottingham Road. Many other shops offer student discount, generally ranging between 10% and 15%, so remember to carry your student card with you when shopping and don’t be afraid to ask if a shop does discount. Loyalty cards, such as the Nectar card or the Tesco Clubcard, can lead to savings in the form of vouchers; however whether or not these vouchers would match the savings you could make by shopping at budget supermarkets is debatable. As for the rising cost of energy, turning off appliances when they aren’t in use, switching off lights when they aren’t needed, and keeping windows and doors closed unless absolutely necessary can go a long way towards cutting bills. It may also be an idea to look into changing your supplier; you may be able to find a company that will offer the same service you currently receive but at a cheaper rate. Generally students are likely to come under less economic pressure than those who have loans, mortgages, and other arrangements with financial institutions that are likely to raise their interest rates. Student loan repayments are tied to the rate of inflation; something that is rising in the current economic climate, so your student loan will be likely to have to be repaid at a higher rate than you might have expected. Interest rates on credit cards will also probably rise, so those of you with one would do well to look around for a bank that offers 0% interest on balance transfers, or a lower interest rate than your current one. All in all, there is a lot to worry about for those with a stake in the economy, and most people will feel the pinch of a possible recession. However, there are many ways in which the enterprising student can save money and reduce the amount of money they will have to spend; taking advantage of student discounts, shopping at cheaper supermarkets, saving energy by switching off electric appliances when they aren’t needed, and shopping around for providers who will offer you cheaper rates are all ways that you can save money. So don’t fear, despite what the news will tell you, if you take some simple steps you should still be able to afford a few pints in Sanctuary, a new pair of shoes, or any of the other little luxuries that make life that bit better.

Jonathon Cobbe

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