UK borrowing was higher in July than expected. Overall public sector net borrowing came in at £600 million in July, compared with a surplus of £2.8 billion in the same month last year. City’s expectations had been for a surplus of £2.5 billion. Overall borrowing for 2012/13 is likely to overshoot the OBR’s forecast of £120bn (ex. Royal Mail effects) by over £35bn
Borrowing was higher than expected due to:
- 20% fall in corporation tax receipts
- Partly due to loss of north sea oil.
- Slowdown in UK / global economy.
The ONS state, figures may be affected by timing of self-assessment tax receipts, but the overall trend for this year is for borrowing levels to be higher than expectations. The government’s deficit target is now likely to be missed. It underlines the difficult position the government is.
The Treasury say:
”“The Government’s fiscal mandate deliberately allows the automatic stabilisers to operate in response to weakness in the global economy, but it is still too early in the financial year to draw firm conclusions about the year as a whole.
The Government remains committed to the credible plan we have set out to deal with Britain’s debts, and today’s numbers emphasise how risky it would be to deliberately increase borrowing.“
Many have been critical of Osborne’s austerity measures for inducing a double dip recession. This slowdown in growth is also a key factor behind the disappointing tax revenues seen this year. To some extent, UK austerity has become self-defeating with austerity measures being insufficient to reduce the deficit and hampering economic growth. However, other argue the disappointing borrowing figures leave the chancellor no room for manoeuvre in allowing deficit to rise further.
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The borrowing figures are 100% irrelevant. As Keynes said, “Look after unemployment and the budget looks after itself”.
I’ll repeat that in different words since there are large numbers of headless chickens amongst our political elite and amongst self-styled economics commentators who don’t get the point.
Government should aim to maximise employment within the constraints posed by inflation. That policy will at times result in a surplus (when there is plenty of consumer and/or business confidence). At other times (i.e. when the latter confidence is lacking) the result will be a deficit.
Whether it’s a deficit or surplus is an utter, complete and total irrelevance.