Public sector borrowing on course to overshoot OBR projections by £11bn

ONS reports a stronger January than last year, but the trend remains poor.

The ONS has released the public sector finances for January 2013, showing that the government ran a surplus of £11.4bn in the month, £5bn higher than in January 2012.

But as Nida Ali, economic advisor to the Ernst & Young ITEM Club, comments, the good news is largely a mirage:

Today’s figures demonstrate the problems caused by all of the statistical fudges of the past couple of years – the various transfers from the Bank of England, Northern Rock and Bradford & Bingley make it virtually impossible to decipher the underlying trend.

Although January’s headline number looks encouraging, it appears that the state of the public finances is worse than the government and the OBR had hoped for. Stripping out the one-off factors, net borrowing in the financial year-to-date is £7.5bn higher than last year. With just two months of data pending and last year’s deficit having been revised down, there is virtually no chance of borrowing being lower on a like-for-like basis in 2012/13 than in 2011/12.

Furthermore, the ONS has put a ceiling of £9.1bn on the amount of cash that can be transferred from the Central Bank to the government in 2012/13. Given that this also includes the payment from the Special Liquidity Scheme, it means that the reduction in borrowing caused by the transfers from the Bank of England’s Asset Purchase Facility will be £5bn less than the OBR had forecast.

However, even accounting for this setback and the lower than expected 4G proceeds, the government was still on course to miss the OBR’s 2012/13 borrowing forecast by a distance. Assuming that borrowing in the final two months of the financial year is the same as it was last year, the government is on course to overshoot the OBR’s 2012/13 forecast of £80.5bn by almost £11bn.

An £11bn overshoot even of the OBR's already depreciated forecast will be bad news indeed for the Chancellor. But the deficit is, at least, on course to be lower than it was last year; and January itself was strong, as the chart below shows:

Cumulative public sector net borrowing by month, excluding the temporary effects of financial interventions

Good news this month, then — but it only highlights how bad the news has been for the rest of the year.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.