Planned cuts to deficit yet to be realised
CHANCELLOR George Osborne’s deficit reduction plan is already running off track, some economic analysts said yesterday.
Government borrowing measured £17.4bn in May, down from the £18.5bn borrowed in May 2010 — yet in the fiscal year to date (April and May), borrowing was £1.5bn higher than at the same time last year.
Central government spending was 2.24 per cent higher in May this year than in May 2010 (in nominal terms and excluding capex), the Office for National Statistics revealed.
“It’s early days yet but, at this rate, borrowing will overshoot the Office for Budget Responsibility’s £122bn borrowing forecast by almost £30bn,” calculated Jonathan Loynes of Capital Economics.
“The government’s plans for reducing the deficit are now showing worrying signs of slippage,” added Mark Littlewood, head of the Institute for Economic Affairs.
Public sector borrowing for the last fiscal year, which came in successfully below target, was revised up by £3.8bn, to £143.2bn.
In 2009-10, the deficit hit a high of £156.5bn.
“Spending in April and May was 4.1 per cent higher than in the same months of 2010,” the Institute for Fiscal Studies (IFS) revealed in a note.
This year’s budget, according to the Office for Budget Responsibility’s (OBR) forecasts, allows for a 3.6 per cent rise in spending, the IFS said.
The higher spending “is because of higher debt interest payments,” the OBR said yesterday.
Responding to the figures, the OBR continued to point to dented tax receipts early in the financial year and a distorting effect from the one-off payroll tax on banks in April 2010. The tax raised £3.5bn in April 2010, “suppressing receipts growth in the early part of 2011-12,” it said.
Excluding the effects of the one-off bank tax, government receipts are up 7.8 per cent this fiscal year, the IFS calculated — above the OBR forecast for a 7.3 per cent rise.
Government debts reached £920.9bn in May, equivalent to 60.6 per cent of GDP – up from £778.9bn (53.8 per cent of GDP) at the same time in 2010.