Today, the Office for National Statistics (ONS) will publish figures for the UK’s borrowing in December 2015. The figure is likely to be scrutinised closely by economists and media outlets. Annual comparisons show that borrowing increased in the months of October and November 2015, leading many to question whether it is now possible for George Osborne to achieve his fiscal target for 2015/16.
Table 1: George Osborne Public Sector Net Borrowing Targets
Excluding Housing Association re-classification
Source: Autumn Statement 2015 link
The overall borrowing target for Osborne – supported by projections from the Office for Budget Responsibility (OBR) – is a deficit of £69.5bn for this financial year. To meet this target, there is only scope for £2bn of deficit between the months of December 2015 to March 2016. This is a seemingly challenging task considering the UK racked up a deficit of £18.6bn over the same period last year (see figure 2).
Table 2: Borrowing Figures for December 2014 – March 2015
Source: Office for National Statistics
There are some encouraging signs for the Chancellor. According to Capital Economics, the expected borrowing figure for December 2015 is £10.5bn, which would be an improvement of nearly £3bn compared to 2014’s figure. The accounting of payments made to the European Union and the World Bank may even push borrowing even lower than £10.5bn. Furthermore, the OBR is expecting January 2016’s figures to be boosted by an increase in self-assessment income tax and stamp duty receipts.
However, even accounting for these factors, Osborne’s fiscal targets now seem overly ambitious. His softening of spending cuts announced in the Autumn Statement will also make it even harder to meet his targets in the years ahead.
It would be complacent to rely on the OBR’s forecasts. As can be observed in the OBR fan chart (figure 1), the UK’s deficit projections for 2020/21 range from around 4% of GDP to -4% of GDP. Given the International Monetary Fund has this week highlighted that risks to the global economic outlook “remain tilted to the downside,” Osborne’s current spending plans may lead to deficit spending being in the middle to upper part of the fan chart.
If Osborne wants to stick to his fiscal targets, he may have to consider where additional savings can be made at his Budget in March.
Figure 1: Public Sector Net Borrowing Fan Chart
Source: ONS & OBR
Key Things to Look Out For
1) Borrowing for December 2015 is expected to be around £10.5bn and might even be lower due to the accounting of payments to the World Bank and the EU. Any figure higher than £10.5bn would be a major blow to the Chancellor.
2) The surplus for January 2016 should dramatically exceed January 2015’s figure of £8.8bn – given the OBR’s projection of increased self-assessment and stamp duty income.
3) Look out for any sign of a change in projections from the OBR. Despite the disappointing borrowing figures for October and November, the OBR has continued to maintain its borrowing projections.