This year, Britain is likely to incur a fiscal deficit of more than 12 per cent of national income. This figure is completely outside the normal experience of developed countries in peacetime. How did it happen and what are its implications?

The normal rule of prudent public finance is to allow for substantial cyclical variation. Recessions cut tax receipts and lead to additional expenditure, especially on benefits. Moderate surpluses in good times turn into moderate deficits in bad times, so things balance out overall.