Borrowing is much higher than it should be. Photo: Getty
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Government borrowing: the numbers don’t add up

There is less scope in the years ahead for our current levels of borrowing to be eliminated by further economic growth. 

Friday’s public spending figures brought some small comfort to the Chancellor. In September, borrowing for the year was 10 per cent higher than the previous year; the gap has now narrowed to 6 per cent. But that is very small comfort indeed when borrowing was supposed to fall by around 12 per cent this year.

The initial signs looked good: GDP growth for 2014 is expected to come in at around 3 per cent, higher than the OBR forecast back in March. But poor wage growth has continued to hold tax receipts down. The result is that borrowing is much higher than it should be. 

At the same time, economic forecasters are putting the higher than expected growth down to a faster recovery rather than an improvement in the underlying health of the economy. This means that there is less scope in the years ahead for our current levels of borrowing to be eliminated by further economic growth. 

This has serious consequences for fiscal targets in the next parliament. The Conservatives have said that if they win the next election, they would seek to generate an overall surplus by 2018-19. 

On the plans set out back in March, that looked feasible. With £38bn of cuts to government departments after 2015-16, the OBR forecast that by 2018-19, the next government would have eliminated borrowing and would in fact be running a surplus of just over £1 billion. 

The SMF’s calculations, based on the latest economic forecasts, shows that this is no longer likely to be the case. Instead, even with the £38bn of cuts, borrowing will still be at around £14bn. To hit their targets, the Conservatives would have to bring the total cuts after 2015-16 to £52bn.

Since 2010, the deadline for completing the deficit reduction programme has had to be repeatedly postponed. In large part, thisis because the state of the economy has disappointed. In the next parliament, as with this one, the performance of the economy will make the difference between success and failure in meeting any of the main political parties’ fiscal targets. If, for example, it were possible to repeat the sustainable growth era of the early 2000s, the need for further cuts after 2015-16 would disappear. By contrast, if we see a repeat of poor underlying productivity growth seen in recent years, the size of the cuts required could balloon.

The next government must have an ambitious plan to boost long-term growth, and repairing the UK economy must be seen and treated as an integral part of any public spending strategy. This means that areas of spending that have growth enhancing-benefits must be prioritised.

The spending cuts programme was expected to be over in time for the 2015 general election. Instead, the next incoming government will have an even bigger challenge on its hands than in 2010: making further fierce cuts to spending when the easiest savings have already been made.

Nida Broughton is Chief Economist at the Social Market Foundation 

Nida Broughton is Senior Economist at the Social Market Foundation.

Photo: Getty
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Who will win the Copeland by-election?

Labour face a tricky task in holding onto the seat. 

What’s the Copeland by-election about? That’s the question that will decide who wins it.

The Conservatives want it to be about the nuclear industry, which is the seat’s biggest employer, and Jeremy Corbyn’s long history of opposition to nuclear power.

Labour want it to be about the difficulties of the NHS in Cumbria in general and the future of West Cumberland Hospital in particular.

Who’s winning? Neither party is confident of victory but both sides think it will be close. That Theresa May has visited is a sign of the confidence in Conservative headquarters that, win or lose, Labour will not increase its majority from the six-point lead it held over the Conservatives in May 2015. (It’s always more instructive to talk about vote share rather than raw numbers, in by-elections in particular.)

But her visit may have been counterproductive. Yes, she is the most popular politician in Britain according to all the polls, but in visiting she has added fuel to the fire of Labour’s message that the Conservatives are keeping an anxious eye on the outcome.

Labour strategists feared that “the oxygen” would come out of the campaign if May used her visit to offer a guarantee about West Cumberland Hospital. Instead, she refused to answer, merely hyping up the issue further.

The party is nervous that opposition to Corbyn is going to supress turnout among their voters, but on the Conservative side, there is considerable irritation that May’s visit has made their task harder, too.

Voters know the difference between a by-election and a general election and my hunch is that people will get they can have a free hit on the health question without risking the future of the nuclear factory. That Corbyn has U-Turned on nuclear power only helps.

I said last week that if I knew what the local paper would look like between now and then I would be able to call the outcome. Today the West Cumbria News & Star leads with Downing Street’s refusal to answer questions about West Cumberland Hospital. All the signs favour Labour. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.