23 December 2015

Should Osborne be panicking about UK borrowing?


The latest figures on UK government borrowing are troubling. With dramatic headlines like “Osborne Xmas headache: Britain’s borrowing INCREASES and debt reaches £1.53TRILLION” and  “George Osborne left praying for Christmas miracle after borrowing leaps by a whopping £14bn”, UK readers would be forgiven for feeling anxious. But the picture is actually more mixed. Here at the six things you need to know to understand what’s going on.

1. Borrowing has fallen so far this financial year. Borrowing is down £6.6 billion when comparing April 2015 – November 2015 to the same period last year.

2. More recent months will be of concern to the Chancellor, however. Borrowing for the months of October and November is up compared to last year.

3. One off factors played a part in the increase in borrowing for November. For example, the Treasury benefitted from a one off £1.1 billion in bank fines in the month of November 2014. However, analysts from Capital Economics now believe that the Chancellor will not meet the Office for Budget Responsibility’s (OBR) forecast for this fiscal year.

4. The Chancellor softened spending cuts in his Autumn Statement, claiming that improved future financial forecasts by the OBR mean that he will still hit his budgetary targets. The latest figures will bring into question whether this still remains true.

5. The OBR remains committed to its forecasts. They claim that policy measures will boost self-assessment income tax receipts in January and February.

6. George Osborne has very little room for manoeuvre. In the Autumn Statement, announced cuts to unprotected departments were one-third less than implied in July. Osborne needs to see a major improvement in borrowing figures over the coming months, otherwise critics will argue that his economic plan is failing.

Daniel Mahoney is the Head of Economic Research at the Centre for Policy Studies.