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Public borrowing under Osborne now going UP

'Gideon' OsborneThe whole point of the austerity programme imposed by Osborne was supposed to be to reduce the budget deficit. The latest data on the deficit however shows a dramatic and disturbing turnabout. Instead of going down, it is now rising, and there are good reasons for expecting this trend to continue. Official data shows that Osborne was forced to borrow £11.6bn to fill the gap between revenues and spending, £700m more than a year ago. He had been forecast to borrow about 12% less this year than last, but in the event has had to borrow 6% more. This is a really sensational reversal of the government’s claim that it is on track with its (fantasied) ‘long-term economic plan’ and blows a big hole in the idea that austerity is the best way to reduce the deficit, let along able to do so at all.

In fact it reveals starkly how counter-productive austerity is in deficit reduction compared with public investment. When the bankers’ crash erupted in 2008-9, the budget deficit reached a peak of £159bn in 2009-10. Alasdair Darling as Labour Chancellor stimulated the economy with two expansionary budgets in 2009 and 2010. As a result the deficit fell the next year to £141bn and then again to £121bn the following year – a reduction of £38bn in 2 years. Then Osborne’s austerity programme kicked in, and the rate of deficit reduction halved in the next two years to £99bn last year. This year it now seems likely that the deficit will actually increase to some £105bn.

The explanation for this unwelcome turnaround is not hard to see. As some of us have repeatedly said, if Osborne shrinks the economy – and average wages are already 9% down in real terms since the crash, and still falling – then government tax receipts will shrink as well, and if they shrink faster than government expenditure is cut, the deficit will rise, and that is exactly what is now happening. The OBR, on the back of over-optimistic forecasts of rapid growth, predicted that government tax receipts would rise 6.5% this year. In fact they have so far dropped by 0.8%. This simply exposes how far the government’s much-vaunted cut in unemployment reflects merely a big rise in self-employment on a pittance income with most of the other jobs being very low-paid or zero hours contracts.

There is another big implication of this latest evidence. It shows the’recovery’ is much more feebly based than Osborne likes to boast. Estimates of third quarter growth are now being scaled back by the NIESR from 0.8% to 0.6%, manufacturing orders have nose-dived, the trade gap is widening remorselessly, business investment is still flat, and now to cap it all the public finances – the heart of the Osborne laboratory experiment on the British economy – are deteriorating. On this accumulating evidence the facade of recovery will collapse before the next election.

2 Comments

  1. Robert says:

    Sadly of course labour is backing the Tories spending plans and anything else they think will get us to vote for them wage caps, and benefits cuts.

    The real issue here is a simple one if you think the Tories have got it wrong of course, then why would you vote labour.

  2. Terence Bermingham says:

    Robert, I am afraid I have to agree with you!

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