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.Reuse content