More grim figures on the state of the public finances: the UK’s public sector net borrowing jumped to £16.1bn last month, the highest August figure ever recorded. The government’s net debt is now above the £800bn mark, having jumped by more than £170bn in the last 12 months thanks to all those banking bail-outs and collapsing tax revenues. Since it looks as though Alistair Darling’s forecasts will be miles out, the Chancellor will probably be delighted that Lloyds Banking Group is trying to cut back on its use of the Government’s insurance scheme for its dodgy assets. Though we imagine the bank is more interested in mollifying the Competition Commission than the Treasury…
It’s easy to be blasé about yet another record set of borrowing figures, particularly given that they’re more or less in line with expectations. But this is a truly staggering amount of cash we’re talking about here: a budget deficit of £16bn in August means the UK was effectively forced to borrow over £500m every day throughout the month. Alistair Darling’s prediction that net borrowing will hit £175bn this year looks increasingly optimistic – indeed, some economists are predicting that it might be as much as £50bn more than that. Corporates are paying less tax because their profits are down, while rising unemployment has slashed income tax revenues and increased benefit costs. Net debt now stands at 57.5% of GDP, and rising.
Lloyds has been one of the biggest beneficiaries of public largesse, of course – but it’s desperate not to take any more taxpayer cash. The bank said today that it’s trying to extricate itself from the Government-backed asset protection scheme, in a bid to keep the Treasury’s stake below 50%. But this will mean raising capital elsewhere, presumably via a rights issue, asset sales or some other financial wizardry. And with a bit of luck, cutting down its state support might help persuade the Competition Commissioner that it doesn’t need to get rid of its Halifax branches after all.
At least these horrible borrowing figures should sharpen the focus on spending cuts. After all, things have got so bad that not even Gordon Brown can avoid the ‘c’ word any more. With a bit of luck, we’ll finally start to see a grown-up discussion about how and where the axe can fall, ideally with the minimum damage to front-line services. However, we’ve come to the conclusion that since the politicians appear to be pretty hopeless at this, MT readers would be a much better source of ideas. So keep an eye out for a little competition we’ll be running next week...
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