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Deeper in the red

The good news is that the government is painting the town red. The bad news is that it is with the red ink they are using to write the government’s borrowing needs – needs that we are all going to have to pay for, one way or another, in the years to come.

 

We have already gone from bad to worse. Now we have gone beyond “worse” according to the latest government figures for public sector net borrowing.

 

July is normally a good month for the public finances. It is one of the month’s in which the government receives a quarterly payment of corporation tax from businesses. Analysts were typically expecting a deficit of about £500m. But their expectations were sadly off the mark. The official figures for public sector net borrowing in July showed a deficit of £8bn, which compares with a surplus of £5.2bn in the same month last year. This means that total net borrowing for the fiscal year to date since April 2009 now totals £54.7bn which is £20bn up on the same period last year. At the same time total revenues received were £24.1bn compared with £44.1bn last year.

The government has posted net borrowing figures which are even deeper in the red.

The government has posted net borrowing figures which are even deeper in the red.

 

The BBC quoted a Treasury spokesman as saying: “In the first half of the year, the whole world was in a steep recession and that affected the public finances here in the UK.” Well, thank goodness I have a degree in Economics or I just wouldn’t have been able to follow that explanation. But what are you going to do about it?

 

The reason we are worse off than anticipated is due to the steep drop in tax revenue that is coming in compared to the rise in benefit payments which are going out. Corporation tax receipts were 38% down on the same month last year, whilst VAT income fell by almost 34% – in part due to the reduction in VAT from 17.5% to 15% which was introduced last December. On the other side of the coin, the cost of net social benefits rose 10% on the same month a year ago, reflecting the rise in unemployment, with those claiming jobseekers allowance now totalling around 1.5 million.

 

Few commentators now believe that the chancellor will reach his target of £175bn in net borrowing for 2009-2010. Many now think that it could reach £200bn which would be around 15% of GDP. This would be a level which has never, ever been reached in the UK before during peacetime. Two hundred billion pounds in borrowing? I must mention that to my bank manager the next time she queries my account.

 

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Posted in government borrowing, government spending, Public Finances

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