Coffee House

Borrowing figures are good and bad news for the government

21 September 2012

1:30 PM

21 September 2012

1:30 PM

Today’s public finance statistics are another case of good news/bad news for the government. First, the good news: the ONS revised down its estimate for government borrowing in the last fiscal year (2011/12) from £125 billion to £119.3 billion. That’s £6.7 billion below the OBR’s estimate in March this year, and means that the coalition succeeded in cutting the deficit by 25 per cent in its first two years (29 per cent in real terms).

But the bad news comes when you look at the current fiscal year. The ONS estimates government borrowing for August at £14.41 billion — roughly the same as August 2011 (£14.37 billion). These estimates do tend to end up being revised heavily — by an average of £1.8 billion, and usually downwards — so that figure might improve in the next releases.

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But for now it takes total borrowing since April to £31 billion — compared to £48.4 billion in the equivalent five months last year. But that sounds a lot better than it really is, because it includes the effect of the Royal Mail pension transfer, which reduces borrowing this year by £28 billion. So really, the government ran a deficit of £59 billion from April to August 2012, £10.6 billion more than the same months in 2011.

In March, the OBR predicted that the deficit would be £92 billion this year — or £120 billion excluding the Royal Mail pension effect. As it turns out, that’d actually be a slight increase on last year’s £119.3 billion deficit. But it now looks like the government isn’t even going to manage that. In fact, Citi Research predicts it’ll overshoot by roughly £10 billion.

And why has it gone off track? The problem is the lack of economic recovery. Tax receipts were forecast to rise by 3.3 per cent this year, but so far are up by just 0.4 per cent (and actually down 2.3 per cent in real terms). Labour blames spending cuts, naturally, but it’s worth noting that central government current spending is up 3 per cent on last year (0.3 per cent in real terms) — although that’s thanks to the rising benefit bill. Even stripping out benefits and debt interest, core spending is up by 2.4 per cent — in real terms, down just 0.3 per cent.

All of this makes it even more likely that — come the autumn statement on 5 December — the OBR will show Osborne missing his debt target (to have the debt/GDP ratio falling in 2015/16). Mervyn King prepared the ground for this on Channel 4 last night, saying it would be ‘acceptable’ to miss the target if the world economy doesn’t recover.

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Show comments
  • David Lindsay

    He looks *exactly* like Gordon Brown in that photograph. It is uncanny.

  • Nizar Harhouf

    The more we export products the better the economy, increasing taxes on public is not a better solution, UK products/manufacturing must find a place to be marketed, I m currently promoting UK trade to Sudan. this country is full of resources, the infrastructure is poor and the good thing is United Kingdom and Sudan have a shared history, no trade sanctions, the ground is established already cause Sudanese in the 1960,1970,1980
    trusted only UK products and the relations between the two nations since
    independents from British Colony has been strong.
    Sudan needs new technology in manufacturing and investments in the infrastructure
    If trade promoted well enough between the two countries, it will uplift employments, boost UK manufacturing.
    Please join me for the benefit of our own people.

  • Nizar Harhouf

    The more we export products the better the economy, increasing taxes on public is not a better solution, UK products/manufacturing must find a place to be marketed, I m currently promoting UK trade to Sudan. this country is full of resources, the infrastructure is poor and the good thing is United Kingdom and Sudan have a shared history, no trade sanctions, the ground is established already cause Sudanese in the 1960,1970,1980
    trusted only UK products and the relations between the two nations since
    independents from British Colony has been strong.
    Sudan needs new technology in manufacturing and investments in the infrastructure
    If trade promoted well enough between the two countries, it will uplift employments, boost UK manufacturing.
    Please join me for the benefit of our own people.

    • TomTom

      Can we tender to rebuild the German Embassy ?

      • Nizar Harhouf

        it is not difficult to rebuild the German Embassy, it is more important to rebuild relations between nations, what has caused the damage of the Embassy you know it very well. people have the wright to express their anger….. you can not control a billion and five hundred million people from what has heart them in their belief and religion. let me ask you two question, if someone in Europe or in he world has reject the story of the holy-cost which happened during the second world war. what will happen?,,,do you think it is a freedom of speech or not?
        thank you

  • TomTom

    It is all absurd anyway. Osborne created this silly rubbish about Deficit Reduction and running down National Debt. He simply cannot do it. we used to have a minimum income tax rate of 35% + NIC and a top rate of 83% +Investment Income Surcharge of 15%. We had them for a reason…it was to pay off the debt overhang from WW2 and engage in Financial Repression. Osborne simply cannot admit just how poor Britain will be if it tries to pay down National Debt with an ageing population. This Bubble will Burst

  • BoredInOxford

    I genuinely don’t understand the validity of making the assumptions made when you also have “The ONS estimates government borrowing for August at £14.41 billion — roughly the same as August 2011 (£14.37 billion). These estimates do tend to end up being revised heavily — by an average of £1.8 billion, and usually downwards — so that figure might improve in the next releases.”

    I think I’m the only one.

  • Dimoto

    The (welcome) revision to last year’s borrowing total just throws the ONS’s poor record into further relief (most independent economists were predicting an outcome between £116-120B just before the budget, but the ONS then produced it’s usual counter-intuitive estimate) – how long will we have to wait until we learn that the economy has actually been growing this year ?
    Apparently, the stubborn deficit is mainly due to lower corporate income tax receipts (a lagging revenue), other tax receipts have been rising.
    I suspect that Osborne is quite content with this outcome. The PO pension transfer, masks a loosening of expenditure control, which will help growth along a little. And why bust a gut bringing down the deficit with more pain/unpopularity, only for Labour to inherit the rewards ?
    Osborne is too clever-clever for his own good.

  • james102

    A Good Times only political class, what do you expect? Solutions?
    They have never managed anything outside politics and have no track record of success.
    Cameron,Clegg,Milliband what in their past performance would suggest they could do anything about this mess?

    • dalai guevara

      Take PPE off the curriculum.

      • TomTom

        Not really, I enjoyed it – besides Osborne did Mod History at Magdalen and got a Second which is pitiful

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