Advertisement

Britain's deficit just keeps growing

The government has kept up its borrowing in order to bridge the gap created by falling tax income.

Another month, another disappointing British public-borrowing figure. In September the government borrowed £11.8bn to bridge the gap between tax revenue and spending compared to £10.3bn in September 2013.

Borrowing has exceeded last year's figure in all six months of the 2014-2015 fiscal year so far. We are already at the £58bn mark, 10% more than last year. In March 2014, official forecasts had expected the annual deficit to fall by 12% in 2014-2015.

What the commentators said

George Osborne came into office as chancellor "wanting to appear as a responsible book-keeper", said Julian Harris in City AM. But four and a half years on our annual overspend is still "absolutely massive". The plan as unveiled in 2010 was to reduce the deficit to £37bn by 2014-2015. In March 2014 the target for this year was around £85bn.

Advertisement - Article continues below

It now looks as though we'll rack up another £100bn-plus deficit. That means our annual deficit is still around 6% of GDP, added Allister Heath in The Daily Telegraph. The eurozone's is 2.9%. Just about everyone in Europe "puts the UK to shame".

So what's gone wrong? "The big culprit," said Alistair Osborne in The Times, is income tax receipts. While the economy is humming and creating plenty of jobs, "so many of them pay a pittance" and hence produce little taxable income.

The higher personal allowance has also lowered receipts, which are up a mere £100m this year. That's a 0.1% rise, compared to an increase of 5.8% pencilled in by the Office for Budget Responsibility.

Nor does it help that "we're not being as austere as we need to be". Public spending in the first six months was 2.1% ahead of last year, rather than the 1.6% projected.

On the bright side, the tax take should improve as average earnings rise. Deutsche Bank noted that "real wages are finally gaining some traction": the annualised rate of private pay growth has outpaced inflation by around 1% since April.

A further clampdown on spending may also help. But to meet the original deficit target, the government would have to cut borrowing by 37% compared to last year in the next six months. That looks like a "fantasy", as Osborne put it.

And if our economic growth is hit by the downturn in the eurozone our biggest trading partner then that would make things even worse. The Tories' promised tax cuts, concluded Harris, are looking less affordable by the day.

Advertisement
Advertisement

Recommended

Visit/516758/beyond-the-brexit-talk-the-british-economy-isnt-doing-too-badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Visit/economy/uk-economy/601453/uk-set-to-see-more-extreme-monetary-policy
UK Economy

UK set to see more extreme monetary policy

The Bank of England looks likely to cut interest rates below zero at the end of this year.
4 Jun 2020
Visit/economy/uk-economy/601461/a-little-bit-of-good-news
UK Economy

Good news at last – household debt is falling fast

Thre's not much good news around at the moment., But the fact that UK households are paying off debt at a record rate must surely count, says Merryn S…
4 Jun 2020
Visit/economy/uk-economy/601429/mervyn-king-why-the-covid-pandemic-is-a-classic-example-of-radical
UK Economy

Mervyn King: why the Covid pandemic is a classic example of radical uncertainty

This week, Merryn talks to ex-governor of the Bank of England Merryn King about the pandemic and how to prepare for a future that is unknowable; the g…
2 Jun 2020

Most Popular

Visit/economy/uk-economy/601427/covid-bounce-back-loans-and-inflation
UK Economy

What bounce back loans can tell us about how we’ll pay for all this

The government will guarantee emergency "bounce back loans" for small businesses hit by Covid-19. Inevitably, many businesses will default. And there'…
1 Jun 2020
Visit/investments/commodities/601433/commodities-possibly-the-biggest-opportunity-in-todays-markets
Commodities

This looks like the biggest opportunity in today’s markets

With low interest rates and constant money-printing, most assets have become expensive. But one major asset class hasn’t. John Stepek explains why com…
2 Jun 2020
Visit/investments/commodities/gold/601444/these-seven-charts-show-exactly-why-you-must-own-gold-today
Gold

These seven charts show exactly why you must own gold today

Covid-19 is accelerating many trends that were already in existence. The rising gold price is one such trend. These seven charts, says Dominic Frisby,…
3 Jun 2020