Osborne's deficit reduction plan remains off track

Borrowing in August reached a record high of £14.41bn.

While the latest borrowing figures aren't quite as bad as expected, they still make grim reading for George Osborne. The August deficit was £14.41bn, the largest figure on record for that month and further evidence that the Chancellor's deficit reduction plan has stalled. Borrowing so far this year (April-August) is £59bn, 22% (£10.6bn) higher than in the same period last year.

The Treasury derived some comfort from the fact that total borrowing for last year (2011/12) was revised down from £126bn to £119.3bn (largely due to an underspend by local government) but this trend almost certainly won't continue. Capital Economics, for instance, expects the government to miss its deficit target for this year (£119.9bn) by £30bn. For the first time since Osborne entered No. 11, borrowing is set rise in annual terms, a significant blow to his political narrative of "balancing the books".

Worse, the parlous state of the public finances means that Osborne will likely be forced to announce the abandonment of his golden debt rule when he delivers his autumn statement on 5 December. Mervyn King, who has a long-standing alliance with Osborne, told Channel 4 News last night that slow growth (or rather, no growth) meant it would be "acceptable" for Osborne to miss the target, which requires public sector debt to be falling as a share of GDP by 2015-16.

While even Osborne recognises that it would be economically reckless to impose deeper cuts in an attempt to meet the rule, its abandonment will cause him much political pain - he will, indisputably, have failed on his own terms.

George Osborne is expected to miss his deficit target for this year by £30bn. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.