Editorial: Britain's deficit is more intractable than ever

The public finances are £5bn worse than last year and going the wrong way

Share
Related Topics

For the Chancellor, the timing of the latest – disappointing – public borrowing figures could not be much worse. Coming barely two weeks before his autumn statement, official statistics showing soaring government borrowing only add to the pressure George Osborne is under. Indeed, it is now almost impossible for him to avoid using his "mini-Budget" to admit not only that Britain will not start paying off its debts in 2015 as planned, but also that he will need more time to hit his (more important) target to rein in the state's chronic overspend.

Yesterday's figures put government borrowing nearly £3bn higher last month than in October 2011. There had been a slim chance that the Chancellor might squeak through, given the tentative improvements in September. Thanks to a precipitous drop in tax receipts – particularly corporation tax – and a sharp rise in spending, that hope is now gone, leaving Mr Osborne no option but to adapt his plans.

It is dangerous to draw too many conclusions from a single month's data. But, even looking at the six months of the financial year to date, the picture is far from rosy. Although the state's income from national insurance and VAT is slightly up, buoyed by the surprising resilience of the labour market, both income and corporation tax receipts have been painfully squeezed by recession. Meanwhile, Government outgoings have soared, mainly thanks to the bad luck of a steep hike in benefits payments, calculated using last year's sky-high inflation. The result is that the public finances are currently £5bn more under water than they were last year, and with another five months to go the numbers are almost all heading in the wrong direction.

If the figures are bad, the politics are worse. With the deficit-reduction target for this year now all but out of reach, the Chancellor faces an uphill battle to defend himself against the charge that his strategy is dragging the economy into a cycle of decline. He also has little option but to give the Government more time to get its financial house in order, while adding extra austerity measures along the way.

The Coalition is already struggling to find an extra £10bn of savings. The Chancellor is focusing on welfare; the Liberal Democrat Deputy Prime Minister has ruled out an across-the-board freeze, but may yet sign off a temporary one on some benefits. Further tax rises are also all but certain, in part because Nick Clegg's priority is to ensure that those at the top end bear some of the burden of austerity, in part because Mr Osborne knows that he must make up political ground lost by cutting the 50p tax rate. High-end property levies and tax deductions for pension contributions are – rightly – both on the table. With economic growth not expected to show serious improvement until 2014, there will be more such discussions to come.

What, then, are the Chancellor's options? The most obvious course is capital investment. But with money only getting tighter, he cannot afford it – unless he takes another look at economically unproductive spending (universal benefits, say) and recycles the savings into infrastructure. Efforts to encourage private sector funds, such as pensions, to share the burden should also be expedited. Most important of all, though, Mr Osborne must convince wary businesses to stop sitting on their cash. He may not be able to end the euro crisis or control commodity prices, but he can avoid a repeat of the Budget fiasco and his Government can call a halt to confidence-sapping confusion on everything from energy policy to airport capacity to immigration.

Rebalancing Britain's finances was never going to be easy. What yesterday's borrowing figures tell us, however, is that it is going to be even more difficult than we thought.

React Now

iJobs Job Widget
iJobs General

Business Analyst Consultant (Financial Services)

£60000 - £75000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

Systems Administrator - Linux / Unix / Windows / TCP/IP / SAN

£60000 per annum: Harrington Starr: A leading provider in investment managemen...

AVS, JVS Openlink Endur Developer

£600 - £700 per day: Harrington Starr: AVS, JVS Openlink Endur Developer JVS, ...

E-Commerce Developer

£45000 - £60000 per annum + competitive: Progressive Recruitment: Exciting opp...

Day In a Page

Read Next
 

Letter from the Political Editor: Phone and data laws to be passed in haste

Andrew Grice
The first lesson of today is... don't treat women unequally?  

Yvette Cooper is right: The classroom is the best place to start teaching men about feminism

Chris Maume
A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice