Borrowing blow for Osborne

21 Jul 11
Tony Travers

The chancellor’s failure to reduce government borrowing by the required amount suggests that he may have to inflict further cuts on public sector spending

Today’s public finance statistics are gloomy news for the government.  Despite months of pre-signalled doom and gloom about public expenditure, it increasingly looks as if Chancellor George Osborne has not yet got government borrowing under control.  Although public sector revenues in June were up 5.6% on the same month last year, expenditure was up 5.1%.  Because spending is a significantly bigger number than revenue, government net borrowing grew from £15.1bn to £15.3bn. This is not in line with plans.

Public sector borrowing is supposed, on the basis of Office for Budget Responsibility figures, to drop from £146bn in 2010-11 to £122bn in 2011-12 – a cumulative fall of £24bn.   In the first three months of the year, it has fallen by just £0.4bn, meaning there will have to be a disproportionate increase in revenue and/or fall in spending from now on if the planned number is to be achieved.

Overall government receipts are projected to rise by 7.3% during 2011-12, though the first quarter has seen them increase by just 4.6%.  Current expenditure is projected to increase by 3.8% by the end of 2011-12.  In the April-June quarter, it rose by 3.4%, which is slightly below the annual rate.

Thus, it would appear that while spending is more-or-less being held down in line with Treasury plans, revenues are not rising at the expected rate.  Slower than predicted growth in the economy probably explains the revenue shortfall and the limited rate of deficit shrinkage.

Local government current spending, according to another set of figures published recently, will drop (on average) by about 5% in cash terms in 2011-12.  This reduction will be reflected within the expenditure figures discussed above, implying that central departments are still delivering increases in spending (excluding debt interest and social security) of 2-3%.  The difference in treatment between councils and central departments, though not unexpected, is instructive.

The government’s slow start to deficit reduction in 2011-12 may, of course, be merely a blip.  It is possible receipts will perk up and spending rise less quickly than projected.  But for the time being, as financial uncertainty continues in the eurozone and the United States, there must be a question-mark as to whether George Osborne will manage to cut borrowing in 2011-12 by the amount he has announced.  If he doesn’t, there is always the possibility of renewed pressure to reduce public spending by even more than hitherto expected.

There is now so much uncertainty about the future of the global and British economies, about GDP growth and thus about tax income, that no public service should assume that the spending plans up to 2014-15 are the last word about cuts.  Indeed, it looks increasingly as if the current age of austerity has several more years to run.

Did you enjoy this article?