This morning saw the publication of the ONS’s monthly Public Sector Finances. It was always likely to get more coverage than usual, particularly because of the upcoming spending review. Yet the coverage has been a bit bizarre to say the least.
Broadly, the figures show some improvement in underlying borrowing. The chart below, published by the FT’s Chris Giles, is perhaps the clearest indication of the history of where we are today. We ran moderate deficits during the boom years between 2004 and 2008, leaving us susceptible to huge borrowing when the crisis came. A collapse in tax receipts and increase in spending (both discretionary and on so-called “automatic stabilisers”) following the crash led to a jump in borrowing. The Coalition government set out a plan to try to reduce the structural component of this, and were making fair progress up until late 2011/early 2012 after which progress stalled (the Coalition were forecasting a return to robust growth and tax receipts which did not materialise, and they chose not to adjust spending plans). With the year beforehand having seen borrowing remain pretty flat, the past few months have now seen an underlying improvement in the fiscal position.
For example, the Institute for Fiscal Studies says (my emphasis):
So, all in all, mild improvement but with borrowing still extremely high at around £116 billion per year, and showing the need to a) do everything we can to raise the underlying growth rate of the UK economy, b) to stick the course on trying to reduce current government spending, which doesn’t have positive growth effects (the first part of the Coalition’s plan front-loaded investment spending cuts and tax rises).
Two other points need to be made about these public finance figures, however.
First, with all of the various measures and one-off factors, these statistics are becoming near incomprehensible for interested readers. I have to use ONS output a lot in this job, but this is one of the few releases I find genuinely confusing. For example, it took me about half an hour to reconcile the calculations the IFS had done above with the figures provided in the datasets from the ONS website. It seems little surprise to me that we have so much confusion over the state of our public finances when even experienced journalists and commentators have to spend time ploughing through numerous measures to calculate the true underling picture.
Second, it surprised me a lot that the media take-home on the release was the almost insignificant fact that the revised figures show the underlying deficit rose slightly between 2011/12 and 2012/13. To clarify, previous releases showed underlying borrowing falling each year (albeit very slowly). In this release, the ONS revised the down the borrowing figure for 2011/12. Most people might think this is a good news story, right? Wrong. Because the 2011/12 figure (£118.8 billion) is now above the 2012/13 figure (£118.5 billion), we have seen the inevitable “the deficit increased last year” line taken up by the Labour party and those who believe we should spend even more taxpayer money. Media types having been pushing this idea that although not economically significant, this is somehow very significant politically.
I consider this to be somewhat asymmetrical reporting. The figures from 2012/13 are likely to be revised in due course, and thus this time next year we could well be in the same position with the 2012/13 revised down again. Would we really expect a mere £300 million fall in the deficit next year to gain significant headlines and be “very significant politically”? So concerned with minutiae politicking, we are missing the bigger picture: we’re still borrowing vast amounts to live better today at the expense of tomorrow. That’s the real story.