The Government spent £4.3bn more than it borrowed in January, according to official figures out today. That would be rather a lot at the best of times – but when you consider that the UK has never run up any sort of budget deficit in the first month of the calendar year, it gives a pretty clear indication of just how bad our public finances are. Put it this way: if we keep borrowing money at this rate, we could run up a bigger budget deficit this year than Greece managed in 2009. And we haven’t got the Germans to bail us out…
January is usually a pretty good month for the public finances, since companies have to pay their corporation tax bills and lots of us file our tax returns. Last year, the Government finished the month £5.3bn in surplus, and economists were predicting a surplus of £2.8bn this time round. But no such luck: thanks to a near-12% drop in the tax take (with income and capital gains tax receipts particularly hard hit), a sharp rise in Government spending, and higher debt servicing costs, the public finances came in more than £7bn lower than expected. That’s quite a shortfall.
Even by recent standards, these are pretty scary numbers. Analysts at Capital Economics reckon that if you extrapolate this level across the whole year, the UK will need to borrow about £180bn in 2010 – equivalent to 12.8% of GDP. That’s more than Alistair Darling has previously predicted, and even more than the supposedly profligate Greeks managed to clock up last year, when their deficit was 12.7% (though to be fair, their net debt will still be much higher than ours relative to GDP). As you'd expect, the pound has taken a hammering today as a result.
Equally unsurprisingly, the figures have prompted renewed calls from the likes of the BCC for the Government to spell out some ‘credible and specific deficit-cutting measures’ in next month’s Budget. After all, as it points out, the alternative is that we lose our gold-plated credit rating, which will push our borrowing costs even higher.
For now, the Government’s plan seems to be two-pronged: hiking the top rate of income tax (although even Lord Myners has admitted that this will make less money than expected) and cracking down on tax evasion by wealthy non-doms and non-residents (HMRC denies as much, but the existence of a well-funded new compliance department and some high-profile test cases suggest otherwise). Since both of these measures might end up driving more high-earners out of the UK and reducing the tax take still further, perhaps it’s time to go back to the drawing board.
In today's bulletin:
Government £4.3bn in the red last month as tax take plummets
Asda and Halfords deliver good news on jobs
E&J Gallo in the merde over pseudo-pinot
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