Support 100 years of independent journalism.

  1. Business
  2. Economics
21 September 2012

Osborne’s deficit reduction plan remains off track

Borrowing in August reached a record high of £14.41bn.

By George Eaton

While the latest borrowing figures aren’t quite as bad as expected, they still make grim reading for George Osborne. The August deficit was £14.41bn, the largest figure on record for that month and further evidence that the Chancellor’s deficit reduction plan has stalled. Borrowing so far this year (April-August) is £59bn, 22% (£10.6bn) higher than in the same period last year.

The Treasury derived some comfort from the fact that total borrowing for last year (2011/12) was revised down from £126bn to £119.3bn (largely due to an underspend by local government) but this trend almost certainly won’t continue. Capital Economics, for instance, expects the government to miss its deficit target for this year (£119.9bn) by £30bn. For the first time since Osborne entered No. 11, borrowing is set rise in annual terms, a significant blow to his political narrative of “balancing the books”.

Worse, the parlous state of the public finances means that Osborne will likely be forced to announce the abandonment of his golden debt rule when he delivers his autumn statement on 5 December. Mervyn King, who has a long-standing alliance with Osborne, told Channel 4 News last night that slow growth (or rather, no growth) meant it would be “acceptable” for Osborne to miss the target, which requires public sector debt to be falling as a share of GDP by 2015-16.

While even Osborne recognises that it would be economically reckless to impose deeper cuts in an attempt to meet the rule, its abandonment will cause him much political pain – he will, indisputably, have failed on his own terms.

Sign up for The New Statesman’s newsletters Tick the boxes of the newsletters you would like to receive. Quick and essential guide to domestic and global politics from the New Statesman's politics team. The best of the New Statesman, delivered to your inbox every weekday morning. The New Statesman’s global affairs newsletter, every Monday and Friday. A handy, three-minute glance at the week ahead in companies, markets, regulation and investment, landing in your inbox every Monday morning. Our weekly culture newsletter – from books and art to pop culture and memes – sent every Friday. A weekly round-up of some of the best articles featured in the most recent issue of the New Statesman, sent each Saturday. A weekly dig into the New Statesman’s archive of over 100 years of stellar and influential journalism, sent each Wednesday. Sign up to receive information regarding NS events, subscription offers & product updates.
I consent to New Statesman Media Group collecting my details provided via this form in accordance with the Privacy Policy