Even without the shortfall from 4G auction revenues, the chancellor's public borrowing estimates were way off mark. Now he's looking £6.1bn short of cash
Yesterdays’ news was all about the 4G spectrum auction revenues coming in £1.2 billion under George Osborne’s estimate.
Back in December, the expected 4G auction revenues were what allowed the chancellor to declare that the deficit was going to fall in 2012-13, even if you excluded the flattering effects of one-off windfalls such as the transfer of the Royal Mail pension scheme and the quantitative easing income from the Bank of England.
At the time, the fact that it all depended on the inclusion of spectrum auction revenues led to accusations that the Treasury was cooking the books. As it turns out, that argument is looking irrelevant. The deficit now looks set to overshoot last year’s by some £6bn – even the 4G receipts can’t save the chancellor, it seems.
On the surface, today’s public borrowing figures don’t look too bad – January is a good month for the public finances as the Treasury collects a large portion of its yearly tax revenues. This January, the Treasury has also benefited from the first instalment of goodies from its Asset Purchase Facility raid of the Bank of England.
But, unfortunately for the Chancellor, January’s good news is not enough to overhaul the run of disappointing figures since the Autumn Statement. Stripping out one-off windfalls, borrowing so far this year is tracking at around 7% higher than this time last year.
If this 7% overshoot continues, then 2012-13 regular borrowing would be set to come in around £4.9 billion higher than last year – even if the 4G expected revenues had materialised. Adding in the 4G shortfall takes the projected overshoot to £6.1bn. Without a huge turn-around in the final two months of the year, a huge political row is brewing.
But perhaps the more important question is what all this means for the government’s structural deficit - the part of the deficit that remains when the economy recovers. Eliminating this deficit within five years is the central task the government has set itself.
With overall borrowing rising, it’s likely that the structural deficit is also rising. Unless something dramatic happens between now and April, the important question will be just how much it has grown, and how much more austerity will be required to eliminate it.
Nida Broughton is a senior economist at the Social Market Foundation. This post first appeared on its website
