Is the deficit a reflection of the government's bank balance?

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Mr Carnihan
Delivered

Dear Bank of England,

I'm studying economics and wondered if you could clarify something for me.

Is the deficit a reflection of the government's bank balance?

Or, is the deficit purely the difference between what has been spent versus what has been received?

For example:

If the government has £100 billion in its bank account and it spends £90 billion on Monday, but only receives £80 billion on Tuesday then the deficit is £10 billion because 90 - 80 = 10.

The difference between what it spent and what it received is 10 billion. But that is not a reflection of the total amount of money left in its bank account, which would be £10 billion in credit.

If the government then receives 10 billion on Wednesday, then the deficit disappears because 80 + 10 equals 90, which equals the £90 billion it spent on Monday. If we add that £90 billion to the £10 billion it never spent, then the government's bank balance would be back up to £100 billion.

Kind regards,

Mr Carnihan

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Enquiries, Bank of England

Official Blue

Dear Mr Carnihan

Thanks for your email.

The Bank of England does not manage the Government's finances or debt. So your question may be best directed to HM Treasury https://www.gov.uk/government/organisati... or the Debt Management Office, an executive agency of the Treasury, https://www.gov.uk/government/organisati...

However, I hope the following may be helpful in providing some useful information. A deficit occurs when expenses exceed revenues, imports exceed exports, or liabilities exceed assets.

You may find the following page of interest:

https://www.ons.gov.uk/economy/governmen...

Kind regards

Emily
Engagement and Enquiries
Bank of England

Threadneedle Street, London EC2R 8AH
[Bank of England request email]
+44 20 3461 4878

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