Despite the recent run of positive economic data, today's borrowing figures show that the coalition's deficit reduction plan remains off track. Borrowing in July (excluding financial interventions and the QE coupons from the Bank of England) was £0.5bn, £1.3bn higher than in the same month last year when it stood at £-0.8bn, and higher than the market forecast of a £2.5bn. So far this financial year, the deficit is £36.8bn compared to £35.2bn at this stage last year.
The Treasury has responded by pointing out that government spending was higher than usual due to local government accounting changes and timing changes for some departments, and that underlying tax receipts are by up 3.4%. But even taking this into account, the figures remain poor. After all, there has been no shortage of austerity. Infrastructure spending has fallen by 42 per cent, VAT has risen to 20% and 423,000 government jobs have been cut, so that the public-sector workforce is at its lowest level as a share of employment since 1999. Despite all this, progress on deficit reduction has stalled.