Is Osborne borrowing more or less?
The Chancellor is set to borrow more than Gordon Brown planned.
By George Eaton Published 29 November 2011 10:13
Is George Osborne borrowing more or less? You won't find a simple answer in today's papers. The Guardian reports that "Britain will borrow £21.5bn less than previously forecast" but the FT warns that "the black hole in UK public finances has increased by almost £30bn." Elsewhere, Reuters reports that the Office for Budget Responsibility's forecasts are expected to show a "borrowing overshoot of at least 86 billion pounds over four years." Who's right? The answer is that they all are.
In his autumn statement, at 12:30pm, Osborne will announce that Britain's record low bond yields have saved the taxpayer £21.5bn, the so-called "safe haven dividend". Money that would have been spent on financing the national debt can now be spent on enterprise schemes, free childcare, business tax breaks and so on.
But unfortunately for the Chancellor, that's not the end of story. Owing to lower growth and higher unemployment (which leads to a larger welfare bill), public sector net borrowing is expected to be around £86bn higher (the Reuters figure) than forecast at the time of the Budget in March. Even before today, Osborne was forecast to borrow £46bn more than expected. When the OBR publishes its latest forecasts today, that figure could rise to an enormous £132bn (£46bn + £86bn), taking Osborne's total borrowing over that planned by Alistair Darling. The Brown government was forecast to borrow £127bn in 2011-12 and £106bn in 2012-13. Osborne is expected to borrow £129bn ths year (up from £122bn) and £117bn next year (up from £101bn). Labour's smart attack line is that while the Chancellor is borrowing to meet the cost of high unemployment, it would have borrowed to fund growth.
Then there's the structural deficit, the "black hole" the FT refers to. The structural deficit - the part of the deficit that remains even after growth returns - is now forecast to be £30bn bigger. This is because the output gap - the difference between actual and potential growth - is smaller than previously thought. In other words, the economy is capable of less growth than initially forecast. This can't be blamed on Osborne's policies and, worryingly for messrs Balls and Miliband, has implications for Labour's own deficit reduction plan. It also means that the Chancellor is almost certain to miss his self-imposed target of eliminating the structural deficit before the next election. However, he is still likely to meet his formal fiscal mandate - to eliminate the structural deficit over a rolling five-year period. For example, from today, he has until 2016-17 to eliminate the deficit, from next year, he'll have until 2017-18. But meeting this target means extending austerity into the next parliament. A structural deficit can only be eliminated by spending cuts and tax rises, so Osborne will go into the next election warning of further pain to come.
The Chancellor's pledge to eliminate the structural deficit in one parliament was based on a political timetable, not an economic one. By 2015, Osborne envisaged that the Tories would be able to boast that they had cleaned up "the mess" left by Labour - a powerful political narrative - and offer cuts in personal taxation. But, as the grim figures above show, this is now a distant dream.
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19 comments
We could export energy Inbrew, it would make up for the failed export policy, described as a " Damp Squib"
by exporters in London.
"The Brown government was forecast to borrow £127bn in 2011-12 and £106bn in 2012-13" Surely the Brown government wouldn't have needed to borrow anything because Brown himself had ended boom and bust.
^^ yeah and the recession would only last 6 months... apparently
Dire statistics but I guess just like how the recession of 2008 was a challenge for the Labour govt, the 2011 crisis (which is far worse) is the challenge for the coalition. And before all the Labourites start to harp on about how the economy was recovering under Labour... the underlying issue was never fixed by Labour and it merely put if off for awhile until the Eurozone started to crumble.Hard times lie ahead for everyone but if these reforms go through, I think it would help in the long term.
Luddite, your a perfect example of how hatred can turn people into a empty shell.
We are borrowing more, because Osborne has made bad decision after bad decision.
Marco, the eurozone isn't in recession, please stop with the fantasy.
http://www.eveningexpress.co.uk/Article.aspx/2539267
That comment tells me how little Luddite, really knows, otherwise he would have spotted the schoolboy error.
yes always find that argument interesting how labour 'fixed it'. A global morphine injection of 3 trillion dollars and growth upticked ever so slightly, and the mopronic Balls presents thisas a fix... his ardent admirers agreeing 'it' fixed!'
Eventually osborne will realise that trying to be fair is pointless when dealing with morons and i wonder what willhappen then.
Reminfd me what just happened in Spain?
Well - they're out in force today!!
"Dire statistics but I guess just like how the recession of 2008 was a challenge for the Labour govt, the 2011 crisis (which is far worse) is the challenge for the coalition."
You're right to highlight this Stu. This is the scariest aspect of our current condition. What Osborne and Cameron were proposing in response to the crisis in 2008 would have made matters far, far worse. They showed themselves then to be economically naive and sadly have been doing so in spades ever since they have been in government.
Scary indeed.
@matt
Foxy, what do you get after decade of Balls up's and Gordon's economics?
I wish Balls would forget his economic policies.
The thing is, George, forecasts aren't reality. I mean is Balls less incompetent that Osborne? - I really don't know.
It's not scary it's just Dumb.
Governments are full of dumb people who can't see the wood for the trees.
We had the pain of the early eighties, the pain of the early nineties, then a a party, now the pain's returned, because the underlying causes of the pathology have not been diagnosed.
"Labour's smart attack line is that while the Chancellor is borrowing to meet the cost of high unemployment, it would have borrowed to fund growth."
Where is this smart attack? All I see is a student leader still moaning about how differently he would have acted if he was in power, without any of the rhetoric to capture the imagination of anyone. As for Balls, I wanted a rottweiler and all I got was a Labrador.
The eurozone is predicted to contract in this quarter and possibly the next few, so it is. Germany is expected to contract by about 1% in this quarter.
If you think the UK can be immune to this, get bloody real.
Come one Marco, pick up your dummy, and get back in your pram.
Do you understand the phrase " In recession "
You seem to be immune to the truth.
I think you and Luddite are two simpletons with access to the internet.
Are we in the 4th quarter? Yes.
Are these economies effectively in recession? Yes.
Oh well nevermind, back to Gideon hehehe
So let me get this right labour are moaning about Osborne borrowing more........
For goodness sake you're laughable.
I suppose you missed the point our biggest export market is now in recession, it's clearly all to do with cuts. Ahh nevermind.
Poor Stu, not so long ago, the dark days were in the rear view mirror, now it is tough times ahead.
Unfortuately for David Cameron, he is looking pretty stupid, he accused Labour of getting their sums wrong over the bank levy.
Cameron justified the huge Banker Bonuses that where bestowed this year, stating the bank levy would raise £2.5 Billion.
Gideon has had to raise the bank yet again, the second rise in 2011 alone, so revenues will come to £2.5 Billion
Effectively Marco, keep changing your words.
Would like to remind me how many of these Eurozone countries are in decline, due to spending cuts and increasing taxation.
What happened to our export led recovery Marco, and the makers that where marching.
I wish Conservatives would remember their own economic policies.
Marco. The political-left don't live in the real world they occupy some hairy fairy would of self delusion. Malcontents such as Matthew fox is a shining example. This is how sad this particular one is, he actually believed Gordon Brown was a brilliant chancellor, it doesn't get any sadder than that...
Inbrew, what do you get after the mis-rule by Thatcher.
According to Rachel Lomax, a former Bank of England deputy governor.
"When Prime Minister Thatcher said there was no alternative during her austerity programme in the Eighties it created long-term economic and social problems which took years to sort out."
I wish you actually understood economies. Better luck next time.
"an enormous £132bn"
Before 2008 and the banking crisis, Labour borrowed £350Bn and spent it but did not invest it.
But what did we get for it? Over the same people, UK industry was run down at its fastest rate since the 1970's. The money needs repaying buy our kids (heaven forbid we have to repaid, how unfair would that be)
£350Bn is enough to pay for 2 Japanese earth quakes or to covert the UK engery supply to fully sustainable so that we were a net exporter of energy.