Rise in borrowing deals blow to Osborne
Slow growth in tax revenues led to further disappointments in deficit reduction in June, dealing a further blow to George Osborne’s economic strategy.
The day after the International Monetary Fund said the path for fiscal consolidation might need to be tempered, weak income tax revenues suggested such a course was already happening.
Excluding the one-off effects of a transfer of Royal Mail pension assets on to the government books, public sector net borrowing had risen to £42.9bn in the first three months of the 2012-13 financial year, compared with £38.4bn in the same period last year.
The apparent rise in borrowing, however, was partly caused by a change in the timing of public expenditure, bringing certain costs forward in the financial year and distorting the picture.
A Treasury spokesman said: “It is too early in the financial year to draw conclusions about the year as a whole. This is volatile data and prone to revision: borrowing for last year has been revised again and is now estimated to be below the OBR’s forecast.”
Even with the difficulties of making an assessment of the spending out-turns, the tax revenue data in the first quarter of the financial year have so far been weaker than the Office for Budget Responsibility expected.
Total central government receipts were 2.5 per cent higher between April and June than in the same period in 2011-12, significantly slower than the 3.8 per cent rise forecast by the OBR at the Budget in March.
The puzzle of gauging the health of the economy is not resolved by the public finance figures as they continue to paint a more healthy picture of economic growth than the national accounts.
While the official figures for gross domestic product show two quarters of decline and a third expected next week when figures for the second quarter of 2012 are published, the tax receipts numbers and this week’s good employment figures suggest an economy that is stuttering, but growing slowly.
Even so, the rise in measured borrowing will come as a blow to the chancellor, who has staked his reputation on a successful austerity programme to reduce government borrowing and maintain economic growth.
James Knightley of ING said: “It is clear that the recession is leading to a worsening of the UK’s underlying fiscal position and raises more question marks over the effectiveness of the government’s austerity measures.”
Vicky Redwood of Capital Economics said the figures were likely to deepen concerns about public finances. “The trend has been worsening for a few months now and the full effect of the recent return to recession on the public finances is probably yet to be seen,” she said.