UK government borrowing falls. Well, kinda

Public sector borrowing for 2012-13 has fallen 30% on the previous year to £85.1bn. But that's mainly because of the transfer of the Royal Mail pension fund.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013

The latest public sector borrowing and investment figures are in and, according to ONS, the amount spent by government has actually fallen over the past year, from £120.9bn to £85.1bn. Not bad going during a recession, you might say.
 
But looking more closely at the data, the numbers have been skewed. It turns out that the £28bn saving generated by the transfer of the Royal Mail Pension Plan in April 2012 and the £6.4bn cash injection from the Bank of England Asset Purchase Facility Fund into public coffers are the principal reasons for the fall.
 
If you take into account these exceptionals, and the small matter of the £2.3bn transferred from the Bank of England to the Treasury in April last year following the winding up of the Special Liquidity Scheme, borrowing is only slightly down for the year at £119.5bn.
 
Drilling down into the latest underlying borrowing figures for April 2013, however, it turns out that government has whacked more credit on the national tab this year than it did in 2012.
 
Public sector net borrowing for the month, excluding exceptionals, comes in at £10.2bn, up £1.3bn on the previous year.  Or, for the glass-half-full economists among you, £8bn including the government's bank bailout and the Royal Mail pension transfer.
 
And things aren’t looking too rosy for public borrowing in the coming months. The Bank of England has just voted not to restart its bond purchase programme, saying that the economy is improving on its own. This means that there will be no more free cash pumped into the nation’s vaults for the foreseeable.
 
The outgoing BoE governor, Sir Mervyn King, was one of the few policymakers who voted for an extra £25bn of asset purchases to ease some of the pressure on public finances. With inflation falling, he argues, Britain can take the strain.
 
Meanwhile, his replacement Mark Carney has been preaching a different financial gospel. He has warned that Europe could face a ‘lost decade’ like the stagnation seen in Japan in recent years. MT reckons this is a classic case of ‘managing expectations’ before beginning his tenure…
 
What does all this mean for the health of the national economy. Well, public net debt currently stands at £1,185.3bn at the end of April 2013, equivalent to a perilously high 75.2% of GDP. Short of finding an economic defib to get Europe’s economic heart beating again, we’re still up the proverbial without a paddle.

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