What is a budget deficit?
In short
A budget deficit is the gap in a year when the government spends more than it receives in tax and other income. It borrows to cover the difference.
In plain words
Add up spending on services, benefits, and interest. Subtract revenue. If spending is larger, that year's shortfall is the deficit. If revenue is larger, that year is a surplus. The UK figure people usually mean is public sector net borrowing, drawn from official statistics and assessed by the Office for Budget Responsibility. A deficit is common in a downturn, and in many ordinary years. It is not, by itself, proof that spending is too high or tax is too low. That is a political judgement.
A simple example
A household that earns £2,000 a month and spends £2,200 must find £200, perhaps on a credit card. The £200 is this month's deficit. The growing balance on the card is the debt. Next month's deficit might be smaller, but the balance remains until it is paid down. Government borrowing is not a credit card — it is mostly bonds sold to investors — but the difference between one year's gap and the total owed is the same idea.
Why it matters
This year's deficit adds to the national debt, and that debt has to be refinanced at whatever interest rates investors ask. A larger debt means more of the budget goes on interest, which is money not available for services. In a recession, letting the deficit rise can soften the blow, because forcing the books to balance overnight would mean tax rises or spending cuts while incomes are already falling. Over a longer stretch, governments still have to persuade lenders that the debt will stay manageable.
Easy to mix up
The deficit is not the debt. The deficit is one year's borrowing. The debt is the total still owed from the past. You can shrink the deficit and still see the debt rise, for as long as any deficit remains. Some fiscal rules also treat investment differently from day-to-day spending, so 'balancing the current budget' is not the same test as borrowing nothing at all. A budget deficit is also not a trade deficit, which is about imports and exports, not the government's books.