The outlook for Britain's economy remains gloomy

The rise in public borrowing - albeit small - raises legitimate questions about whether the Government's strategy to repair the public finances is actually working

Share

Even in today’s straitened times, £300m is not a large sum when set against total public spending some 2,400 times larger (£720bn) and an overall government deficit some 390 times larger (£118bn). And yet the discovery that public-sector borrowing stood at £118.8bn in the year to the end of March – about £300m higher than the £118.5bn recorded for 2011-12, or a quarter of 1 per cent – has raised entirely legitimate questions about whether the Government’s strategy to repair the public finances and to promote growth is actually working.

By the benchmarks the Treasury set way back in 2010, and since, the economy and the public finances have resolutely underachieved government targets. Partly that is because no one expected the recession to last this long because, in turn, no one expected the eurozone to implode; nor did anyone anticipate quite how long it would take for the banking system to return to health and repair the calamitous damage suffered in the crisis of 2008-09.

The recent travails of the Co-Op Bank and Cyprus remind us that neither the banks’ nor the eurozone’s troubles are over. Faltering growth in the so-called Brics and, until lately, a baleful picture in Japan complete the litany of factors conspiring against the UK. A medium-sized, open trading economy with Europe on its doorstep and a large financial sector couldn’t be expected to thrive in such a climate. Hence tax receipts, despite well-publicised and deeply unpopular hikes, are too low to support spending. Trends towards protectionism and fragile investor confidence have added to the gloom. Indeed, the surprise might be that the UK is doing even as well as it is now, given all of that. Only America has offered cause for optimism, but as Ben Bernanke thinks it might be time to ease off the monetary pedal, even its sturdy performance may start to crumble.

The other side of this story, though, is home-grown policy errors. No one saw that the Bank of England’s radical programme of quantitative easing – pumping money into the economy – would have had such a muted impact. Clearly, the policy reached the point of diminishing returns some time ago, and the battery of lending schemes for the housing market and businesses has had, at best, mixed results. Insofar as there has existed, since 2010, a tacit compact between the Treasury and the Bank – whereby the Bank supported the economy by monetary means while the Treasury got on with the depressing (in every sense) task of cutting public spending and raising taxes – it has not worked as well as it might.

Higher borrowing, lower taxes and higher public spending, then, might have been the right way to support an economy that was not responding to the regime of ultra-low interest rates. We know that now; it could not have been known in advance, but as the evidence grows that such support is needed, the case for adjusting – not abandoning – Plan A grows. This is especially true when there seems little sign that it would spook markets and prompt a Greek-style panic sell-off in sterling and gilts.

We lost our AAA rating months ago, and it seems the world shrugged and moved on. There may be an appetite across the political spectrum and among institutional investors and markets more broadly for a much more ambitious agenda of infrastructure spending. High-profile projects such as Crossrail and HS2 can be joined by other smaller ones, across the country, that would lead to a long-term rise in the trend rate of growth in the UK – the key to raising tax revenues, restoring the public finances, spreading prosperity from the South-east and boosting jobs. If no one would much object, why doesn’t the Chancellor do it?

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Ashdown Group: IT Support Technician - 12 Month Fixed Term - Shrewsbury

£17000 - £20000 per annum: Ashdown Group: IT Helpdesk Support Technician - 12 ...

The Jenrick Group: Maintenance Planner

£28000 - £32000 per annum + pension + holidays: The Jenrick Group: Maintenance...

The Jenrick Group: World Wide PLC Service Engineer

£30000 - £38000 per annum + pesion + holidays: The Jenrick Group: World Wide S...

The Jenrick Group: Project Manager

£35000 per annum + Pension+Bupa: The Jenrick Group: We are recruiting for an e...

Day In a Page

Read Next
 

Letters: Why Cameron is wrong about EU child benefits

Independent Voices
 

Could the real Theresa May please stand up?

Steve Richards
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'