For the first time in months, there’s some good news for George Osborne. Today’s borrowing figures put him on track to easily undershoot the Office for Budget Responsibility’s deficit forecast of £127bn and, after passing the £1 trillion mark last month, public sector net debt (£988.7bn or 63 per cent of GDP) is back below this symbolic threshold.
(N.B. Since the two are often confused, it’s worth pointing out that the deficit is the annual difference between government spending and tax revenues, while the public debt is the sum total of all the past deficits.)
Contrary to the expectations of the right, the 50p tax rate is bringing in significant revenue. The monthly surplus of £7.8bn was the biggest since 2008 and total borrowing for the financial year (£93.5bn) is now £15.7bn lower than in the same period last year.
As ever, it’s important to remember that is just one set of monthly figures and that Osborne is still set to borrow significantly more than expected in 2010. The ever-poorer growth figures (the economy shrank by 0.2 per cent in the last quarter) will hit revenues in the months and years to come.
But the latest numbers do leave the Chancellor with more room for manoeuvre. While Osborne may be tempted to bank the surplus, many in his own party and the Lib Dems would prefer him to use it to cut taxes and stimulate growth. In a rare interview on Newsnight last night, David Laws added his voice to those calling for Osborne to offer an accelerated rise in the personal allowance to £10,000. If the Chancellor has any sense, he’ll heed this advice. As Ed Balls argued at the weekend, although a VAT cut should be the priority, any tax cuts are better than none.