Government borrowing soars in May

George Osborne's deficit reduction plan doesn't appear to be taking root: May's public sector borrowing was £2.7bn more than the same time last year.

by Michael Northcott
Last Updated: 19 Aug 2013

Cutting deficits and reducing net debt is all the rage at the moment: the word austerity has become a household buzzword. But despite all the talk of ‘fiscal responsibility’, it seems chancellor George Osborne is yet to make any headway in tackling the UK’s budget deficit. Public sector borrowing in May was £17.9bn, up 7.9% from £15.2bn in May 2011, according to the latest figures from the Office for National Statistics (ONS). 

The problem Porgie faces is that our economy simply isn’t in great shape. Year on year, May saw a 7.3% fall in income tax receipts, and an 11.7% jump in welfare benefits. Getting the public purse back on track was always going to be tricky if more people lose jobs (stop paying tax) and end up in the dole queue. And whilst this is an inevitable side effect of cutting public expenditure, the figures are embarrassing for a chancellor who spends all his time blaming the ‘profligacy’ of the previous government for the state of the country’s balance sheet…

Debt will actually be even more than the official announcements suggest this year, because of ‘exceptional items’ that are not included in the total. The forecast total borrowing for 2012/2013 is £120bn, but this does not include the one-off cash-booster for transferring the Royal Mail pension fund into Treasury ownership, for example. The fund currently has a £4.6bn deficit, and Royal Mail as a whole has around £1.7bn of debt. It does depend on how you look at it however, because on the plus side the government’s acquisition of Royal Mail actually gives it £28bn worth of new assets which will almost certainly be sold to private investors. 

All in all though, the government’s plan to reduce the deficit to £21bn per year in 2016-2017 now looks wildly optimistic. If spending is actually still climbing in year three of the austerity programme, you have to wonder how on earth things will get back on track within three years. Especially with eurozone woes still rumbling away and a string of banks threatening to collapse across the southern Europe… 

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