View your shopping bag

Items: (0) £0.00
  • €
  • $
  • £

Checkout

Country to feed, please give generously

We haven’t yet seen pictures of Gordon Brown sitting on the pavement outside 10 Downing Street next to a cardboard box bearing the sign – “Country to feed, please give generously” – but we are probably getting closer.

 

Yesterday’s public finance figures make grim reading and show that the government’s finances are deteriorating at an alarming rate. Historically, January is a very important month in terms of tax receipts, but January 2009 saw a drop in tax revenues of 11% on the same month last year, falling almost £7bn. So far in the first 10 months of this financial year, tax receipts are down by £10.1bn compared to the same period last year.

 

The reasons why this has happened are not surprising. Tax paid by companies fell by nearly 25% in January largely due to the losses being made in the financial sector which used to contribute about one-quarter of all corporation tax. Also, stamp duty was down by a half due to the meltdown in the housing market; VAT receipts fell by 11% compared to the year before as a result of the temporary cut from 17.5% to 15%; and income tax receipts fell by 3% due to increased unemployment and the loss of city bonuses.

 

ist2_739235-business-growth-man-climbing-coins

As tax receipts fall, government borrowing has to rise. According to Gemma Tetlow at the Institute for Fiscal Studies: “…on current trends the Government is on course to have to borrow £87bn in 2008-2009, around £9bn more than the Treasury expected in November’s Pre-Budget Report. As a share of national income, this would be the highest level of public sector net borrowing for 14 years.”

 

But the situation is set to get even worse. Andrew Goodwin, Senior Economic Advisor to the Ernst & Young ITEM Club pointed out that government spending will increase quickly over the coming months as unemployment rises at the same time as the worsening recession reduces tax revenues further. He said: “ITEM expects Public Sector Net Borrowing to rise above £130bn in 2009-10.” The Financial Times in a Leader published today claims: “Net borrowing in 2009-10 may break £150bn; more than 10 per cent of gross domestic product.”

 

Perhaps the only good news at the moment is that there does not seem to be any problem with the markets funding this level of government borrowing. Investors are so scared of losing their money in the private sector that for the time being at least, they seem happy to lend to the government by buying government securities.

 

 

Tags: , , ,
Posted in Public Finances

Comments are closed.