How is the UK deficit reduction programme going?
November 8th, 2011
The recent UK government figures for spending and borrowing are a bit better. The UK government borrowed an extra £14.1 billion in September, taking the six month total to £63.5 billion. This compares with £71 billion in the same period the previous year. It enabled the Treasury to claim that it is on track to hit its £122 billion borrowing target for 2011-12, down by £15 billion on the previous year.
The figures showed that current spending is rising a little less than planned, whilst the capital spending cuts are coming through. The public sector has now shed quite a lot of jobs, and the pay freeze now kicks in to limit cost increases. Despite all this, the Central government net cash requirement for September was substantial at £23 billion for the month. September saw some large interest charge payments on the ever rising stock of debt.
The total debt including the financial sector interventions has reached £2278 billion, or 147.6% of GDP. This will continue to rise as spending continues to exceed income by a large margin, though at a progressively slower rate of increase if all goes well.
Whilst current spending growth has slowed a bit, more worrying is the slowing of revenue. Tax receipts were below forecast. Especially weak were Income Tax receipts, down from £10286 million in September 2010 to £9509 million in 2011. The higher rate of Income Tax coupled with slowing growth have so far served to depress revenues. Fuel duties were about the same level of income for the government as a year earlier, showing the impact of rising prices and duty on sales.
So far so good. The figures are on track, and the markets retain their confidence. Things get more difficult from here. Growth is slowing, and that will depress revenues and increases expenditures. The Office of Budget Responsibility will have to cut its forecasts of growth this autumn. That means putting in larger figures for the amount the government needs to borrow.
The UK will need to restrain spending and increase revenues more to keep the deficit reduction programme on course. The international background of slowing growth makes it more difficult. We continue to forecast more total borrowing over the 5 year plan than the government’s current £485 billion estimate. We are concerned about the trend of revenue, as the deficit cutting plan rests heavily on more buoyant tax receipts.
Data correct at time of writing 25.10.11
