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 Theresa May is wrong about immigration

The inconvenient truth: migration helps Britain.

Immigration is a disaster. Well, Theresa May says so, anyway.

May’s speech to the Conservative conference is straight out of the Ukip playbook – which is rather curious, given that she has held the post of Home Secretary for five years, and is the longest-serving holder of the office for half a century. It is crass and expedient tub-thumping (as James Kirkup has brilliantly exposed). And what May is saying is not even true. These are saloon-bar claims, and it is striking that she should unleash them on the Conservative party conference.

“When immigration is too high, when the pace of change is too fast, it’s impossible to build a cohesive society,” May says. Yet, whatever she might say, racism is on the decline. The BNP’s vote in the general election collapsed from 563,000 in 2010 to just 1,667 in 2015. Research by Rob Ford has revealed that the nation is becoming far more tolerant to marriage between races: while almost half of those born before 1950 oppose marriage between black and white people, only 14 per cent of those born since 1980 do. And between 2011 and 2014 (when the figure was last measured), the British Social Attitudes Survey reported a decrease in self-reported racial prejudice, from 38 to 30 per cent.

May also said: “at best the net economic and fiscal effect of high immigration is close to zero.” This is another claim that does not stand up. An OECD study two years ago found that the net contribution of immigrants is worth over £7bn per year to UK PLC: money that would otherwise have to be found through higher taxes, lower spending or more borrowing.

May also asserted that “We know that for people in low-paid jobs, wages are forced down even further while some people are forced out of work altogether.” This ignores the evidence of her own department, who have found “relatively little evidence that migration has caused statistically significant displacement of UK natives from the labour market in periods when the economy is strong.” An LSE study, too, has found “no evidence of an overall negative impact of immigration on jobs, wages, housing or the crowding out of public services.”

The inconvenient truth is that rising net migration is both proof of, and a reason why, the UK economy is doing well. As immigration has increased, so has growth; employment has risen, including for Britons. This is no coincidence.

To win the “global race”, a country needs to attract skilled immigrants who work hard and put in more than they take out. That is exactly what the UK is doing: net migration has just risen to 330,000, a new record. As a whole these migrants “are better educated and younger than their UK-born counterparts”, as an LSE study has found. In the UK today there is a simple rule: where immigration is highest, growth is strongest. The East Coast and Cornwall suffer from a lack of migration, while almost 40 per cent of a immigrants live in the thriving capital.

Lower immigration would make the UK a less dynamic economy. Firms in London enjoy a “diversity bonus”: those with an ethnically diverse management are more likely to introduce new product innovations, and are better-able to reach international markets, a paper by Max Nathan and Neil Lee has found.

Puling up the drawbridge on immigration would have catastrophic consequences for UK PLC. The OBR have found that with zero net-migration, public sector net debt as a share of GDP could rise to 145 per cent by 2062/63; with high net-migration, it would fall to 73 per cent.

So May should be celebrating that the UK is such an attractive place to live, and how immigration has contributed to its success. By doing the opposite, she not only shows a lack of political leadership, but is also stoking up trouble for the Prime Minister – and her leadership rival George Osborne – during the EU referendum.

Tim Wigmore is a contributing writer to the New Statesman and the author of Second XI: Cricket In Its Outposts.