We're broke because we've had a recession since 2007. There are several factors to include in this:
Recessions means wages drop and unemployment rises. People retire early to avoid being unemployed too. Plus companies make less profit and pay less tax. In a global downturn you can't eaily grow exports to counter some of the worst effects. All this means we're paying out more benefits and taking in fewer taxes.
This is what's loosely called the automatic stabilisers. Government keeps on spending, and even increases spending, even though tax collections drop. But this keeps demand in the economy, and stops a recession turning into a depression. The government borrows, and waits until the benefits bills drops and the tax take rises again.
It's also the cyclical deficit. i.e. caused by the economic cycle.
Now we have the harder problems. The structural deficit. That which will still be there, even when the economic cycle has turned, and we're back to boom time again. This is a lot harder to measure, and allows for most shennanigans of producing figures to suit certain political arguments.
1. We've just had a nasty financial crisis. The City was paying something like 10-15% of our total tax bill at the height of the madness in 2007. That's not going to be happening again for a while, nor is it really desireable, given the risk of that sector to our economy. So that's many billions wiped off the tax take.
2. We were also having a property and construction boom. Construction was one of the biggest areas of collapse, and still hasn't recovered. That's another wodge of tax not coming in for many years.
3. Between 2002-2007 Labour ran deficits of between £30-£50 billion each year. These weren't catastrophic by any means, and probably would have been easy enough to solve had we only had a "normal" recession in 2008. But it was an extra deep one, with a side-order of banking crisis. So suddenly a government that might be spending say £60 bn on the automatic stabilisers has this extra wodge of say £40 billlion on top of that, plus the tax loss from construction and banking. Suddenly a manageable deficit is starting to look quite a lot more scary. When you're piling £150bn a year on a total national debt of £600bn - it starts to add up, and make people nervous.
4. North Sea oil output has been dropping by 1% of GDP per year for ten years now. Without that constant drop in GDP we'd have recovered much faster. There's never even have been talk of a double-dip recession.
5. Finally debt interest payments went from £20bn-odd to £50bn-odd now. That's another £30bn a year onto the government deficit.
Estimates in 2008 put the structural deficit at between £60-£90bn. So even when the recession was over, and all the jobs, benefits payments and taxes were back to normal the government would still be running a pretty fat annual deficit. The Conservatives decided that it wasn't worth the risk of doing nothing about this until the recession was over - as that might lose us market confidence, and so make interest payments higher, or even make it impossible for the government to borrow over £100bn a year - and force really sudden cuts. The counter-factual is impossible of course, we'll never know if they were right or wrong. But we've probably now got a better idea of what the structural deficit really is.