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Welcome to Gloomsville, George Osborne

By Peter Hoskin
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Storm clouds

It must be particularly difficult for George Osborne to get out of bed this week – and not just because of the cold. Most mornings he’ll have yet another set of dreary economic figures to crunch on alongside his breakfast cereal. On Friday, we’re expecting confirmation that the economy shrank in the last three months of 2012. Today, it’s the latest public finances data from the Office for National Statistics, which suggest that borrowing and debt are on the rise.

This rise in the debt, to £1111.6 billion at the end of December, oughtn’t be surprising at all. We always knew that debt would go up in cash and real terms over this Parliament. And, as of the Autumn Statement, we knew it would keep on going up as a percentage of GDP, too.

But what about the borrowing? Today’s release reveals that public sector net borrowing* for the first nine months of this financial year (i.e. April to December, 2012) stood at £106.5 billion, a £7.2 billion increase on the £99.3 billion borrowed in the first nine months of the previous financial year. Basically, a sluggish economy meant that government spending grew faster than tax receipts.

So, how does this square with the Government’s aim of getting borrowing down? The basic point is that the ONS numbers don’t account for various effects—from the expected 4G windfall, to transfers from the ‘Bank of England Asset Purchase Facility Fund’—that the Office for Budget Responsibility includes in its forecasts for the financial year as a whole. The OBR still have borrowing falling from £121 billion in 2011-12 to £108 billion in 2012-13. And, judging by the analysis of today’s figures that that they’ve just released, they still seem fairly sanguine about the Government achieving that, although it is probably much closer than the Chancellor would wish. Here are two key paragraphs from that analysis:

“4. Two one-off items are expected to reduce borrowing in the remainder of the year: £11.5 billion from the transfer of the proceeds of the Asset Purchase Facility (APF) to the Exchequer in the final quarter; and the proceeds of the 4G spectrum auction before the end of the fiscal year. We assumed in the December [Economic and Fiscal Outlook] that the spectrum auction would raise £3.5 billion, in line with published estimates by outside industry experts.

5. Excluding these items, our forecast implies that PSNB in the remaining three months of the year would need to be £6.3 billion lower than last year to match the December EFO forecast [for borrowing of £108 billion in 2012-13]. This implies modestly higher receipts growth and weaker spending growth than we have seen in the year-to-date. In the EFO we expected this to come about through stronger growth in receipts from self assessment income tax and VAT than have been seen so far this year and continued underspends in central government departments in the later months of the financial year.”

Whether this changes in future… well, it’s possible. Every set of fiscal forecasts seems to look more precarious than the last, and it's hardly encouraging that the Chancellor is left having to rely on various windfalls and transfers to meet his mark. But, in the meantime, pay little heed to Labour and their attacks on the Government. As any fule kno, Labour would have borrowed even more

* Excluding the distortive effects of the Royal Mail pensions transfer.


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