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January surplus is a case of too little too late for George Osborne January surplus is a case of too little too late for George Osborne
(7 months later)
Too little too late. That's the best way of describing the improvement shown by the public finances last month.Too little too late. That's the best way of describing the improvement shown by the public finances last month.
First, the good news. The government ran a chunky £11.4bn surplus – the second highest for a January since records began. Sure, there were some "funnies" in there which flattered the figures, in particular the £3.8bn of profits made on gilt purchases under the quantitative easing programme which were transferred from the Bank of England to the Treasury. But even when the one-off factors were taken into account, there was an underlying improvement, with an underlying surplus of £7.6bn compared with £6.4bn in January 2012.First, the good news. The government ran a chunky £11.4bn surplus – the second highest for a January since records began. Sure, there were some "funnies" in there which flattered the figures, in particular the £3.8bn of profits made on gilt purchases under the quantitative easing programme which were transferred from the Bank of England to the Treasury. But even when the one-off factors were taken into account, there was an underlying improvement, with an underlying surplus of £7.6bn compared with £6.4bn in January 2012.
The not so good news is that the opposite has been true for the 2012-13 so far: deficits have been higher and surpluses smaller than they were in 2011-12 once the impact of factors such as the proceeds from the Bank's asset purchase scheme and the transfer of the Royal Mail pension fund are accounted for.The not so good news is that the opposite has been true for the 2012-13 so far: deficits have been higher and surpluses smaller than they were in 2011-12 once the impact of factors such as the proceeds from the Bank's asset purchase scheme and the transfer of the Royal Mail pension fund are accounted for.
There are still two months of the current financial year to go, so any attempt to forecast borrowing for the full year has to be educated guess work. That said, most City and independent experts believe George Osborne is on course to miss his borrowing target by between £5bn-£10bn. The Social Market Foundation, for example, is pencilling in an underlying deficit of £125.7bn for 2012-13 compared with £119.6bn. It will make no difference whether the chancellor massages the figures by counting the £2.3bn from the sale of the 4G mobile spectrum licences, the SMF notes, because borrowing is going to rise either way.There are still two months of the current financial year to go, so any attempt to forecast borrowing for the full year has to be educated guess work. That said, most City and independent experts believe George Osborne is on course to miss his borrowing target by between £5bn-£10bn. The Social Market Foundation, for example, is pencilling in an underlying deficit of £125.7bn for 2012-13 compared with £119.6bn. It will make no difference whether the chancellor massages the figures by counting the £2.3bn from the sale of the 4G mobile spectrum licences, the SMF notes, because borrowing is going to rise either way.
Osborne and his fellow ministers keep telling the public that the deficit is down by 20% since they came to power. That's true, but it is also the case that the deficit reduction plan is way behind schedule – something that is never mentioned. In the autumn statement of 2010, the chancellor said borrowing would be down to £35bn by the end of the current parliament: in the 2012 autumn statement this forecast had been raised to £99bn.Osborne and his fellow ministers keep telling the public that the deficit is down by 20% since they came to power. That's true, but it is also the case that the deficit reduction plan is way behind schedule – something that is never mentioned. In the autumn statement of 2010, the chancellor said borrowing would be down to £35bn by the end of the current parliament: in the 2012 autumn statement this forecast had been raised to £99bn.
What's happened is that the improvement in the public finances has been halted by the economy's lack of growth. Borrowing has stagnated at high levels because activity has stagnated at low levels.What's happened is that the improvement in the public finances has been halted by the economy's lack of growth. Borrowing has stagnated at high levels because activity has stagnated at low levels.
That leaves the chancellor with a hard choice. Mindful of the fact that the credit rating agencies are lurking out there with a possible downgrade, Osborne has to decide whether to tighten policy again in the budget. That, in turn, will depend on whether the independent Office for Budget Responsibility says that the deterioration is due to temporary weakness in the economy or to deeper structural factors. If it decides it is the latter, the chancellor will feel the need to signal fresh deficit reduction action. But not, in all likelihood, until after the 2015 election.That leaves the chancellor with a hard choice. Mindful of the fact that the credit rating agencies are lurking out there with a possible downgrade, Osborne has to decide whether to tighten policy again in the budget. That, in turn, will depend on whether the independent Office for Budget Responsibility says that the deterioration is due to temporary weakness in the economy or to deeper structural factors. If it decides it is the latter, the chancellor will feel the need to signal fresh deficit reduction action. But not, in all likelihood, until after the 2015 election.
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