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Reaction to the public borrowing figures

    The public sector borrowing figures out today are still pretty grim. Borrowing for August was almost exactly the same as last year (both around £14.4 billion) whilst overall the current budget deficit was higher in August 2012 (£13.2 billion) than last year (£12.8 billion). This means that overall the cumulative current budget deficit is £12.9 billion higher for April-August 2012 than April-August 2011. The British Chambers of Commerce estimate that the Chancellor will overshoot his borrowing target for the whole year by £20 billion.

    But what’s driving the higher than expected borrowing so far this financial year is a much slower growth of tax receipts than expected. The Budget implied these would grow by 3.9% across 2012-13, but so far since April overall growth in tax receipts has been just 0.4%. In particular, receipts from income tax, CGT and NIC is overall just 1.1% higher in the last five months compared to last year, whilst the expected growth set out in the Budget was 2.4%.

    In contrast, current spending is 3% higher in the past five months than last year, whereas the OBR forecast it would be 3.1% above 2011/12 by the end of 2012/13. So current spending is roughly in line with what the Government expected. It’s worth noting, however, that the OBR had factored in a 5.8% growth in benefit spending for the whole year, in part driven by the growth downgrades but also because the government decided last year to continue uprating many benefits by more than 5% after the high inflation last year. This, combined with the slower than expected growth, has meant overall net benefits are up 6.5% on the year. In contrast ‘other current spending’, whilst still rising in nominal terms, is below the growth expected.

    What does this all mean? Well, the current deficit is higher *than expected in the Budget* because of sluggish tax revenues and higher than expected net benefits – i.e. because of low growth. But policy decisions (to uprate benefits generously, triple lock on pensions etc) have meant that expected expenditure on net benefits was always going to grow quickly this year, and we should question whether these policy decisions were wise.

    The figures do highlight the precariousness of the Chancellor’s fiscal rules, however, and how linked they are to growth. Any measures to raise the growth rate without adding to borrowing would be most welcome.

    Ryan joined the Centre for Policy Studies in January 2011, having previously worked for a year at the economic consultancy firm Frontier Economics.

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    Comments

    Anonymous - About 2918 days ago

    That's because you don't ACTUALLY have that 1.5 mil yet, you have it when you sell the houseEquity is the gap bweteen the cost of your house when you bought it and the positive (more worth) value at a certain time, or when it gains valueTherefore if you sell the house, you'd make enough money to pay off the bank and make some cash; but until then your house is STILL the banks; that's why you take out a loan, your house isn't yours until you pay it off including the equity;

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    Glen Honan - About 2917 days ago

    Can I pose a question – what happens if western economies are not able to grow GDP ever again? ie the economy basically flat lines – marginal growth caused by increasing fuel, transport and energy costs – but nothing else. Large and small commercial businesses are unable to expand, turnover is static, no new employment.

    What if capitalism has reached its zenith? Let’s face it, the whole lot very nearly collapsed, demonstrating at the very least, that our current system is not working. History now shows that unbridled capitalism together with dictatorial socialism is not the complete answer.

    Why are all western governments pinning economic recovery on chasing the holy grail of “growth”? Surely it is the growth – bust seesaw that has caused the greatest misery for everyone (apart from the mega wealthy).

    Is it possible that all western economies together are able to “grow” out of the current problems? We can’t all export our way out can we? Surely where there are winners, there are losers also. Growth is only the prelude to the next bust is it not? Why are western governments obsessed with “short term” solutions ie let’s spend money on “stimulating” the economy (where does this money come from!!!!).

    Perhaps the time has come to think about how we are all supposed to exist/survive/live and for governments to manage a situation where there is no growth miracle to make everything better.

    Sure, world population continues to expand but that does not necessarily mean that “demand” increases in western economies does it? Perhaps it is the inexorable world population growth that is the problem (not the ultimate solution). Our obsession with keeping everyone alive and maintaining the right to procreate without consequence is not a sustainable situation either. We are going to run out of natural resources at some point aren’t we?

    Why are governments not thinking about this as being the single most important challenge facing the human race? The truth is western governments are unable to think beyond the “next election”, so are always embroiled in seeking short term solutions and then wasting/spending countless time justifying the action taken.

    If you think about it, the “average Joe” (and Joe ess) just wants to get on with their lives in a safe, sustainable way. It is not possible for everyone to be a millionaire is it, which means most of us have to be content with getting on with life in the best way we can manage.

    Perhaps time really does need to be called on “the market economy” and we move towards thinking about a new and better way of organising the distribution of the world’s resources to humankind.

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