Tuesday, June 26, 2012
Poor public finances
Posted by David Smith at 02:00 PM
Category: Thoughts and responses

A 17.9 billion budget deficit (public sector net borrowing) for May, 2.9 billion up on a year earlier, the result of strong growth in public spending and weak growth in tax receipts, was not the way it was supposed to be. Borrowing is supposed to be falling but for the first two months of the current fiscal year it is up on the corresponding period of 2011-12.

Why the weakness? The Office for Budget Responsibility, here, notes that the spending numbers can be volatile - until the last months of 2011-12 they pointed to a big undershoot - and that the weakness in income tax receipts is non-PAYE, in other words it has a lot to do with self-assessment. This may be still the backwash of the 50% rate, and efforts to avoid it.

More worrying, past deficits have been revised higher. In round numbers the 2009-10 borrowing peak is now put at 159 billion, falling to 141 billion in 2010-11 and 128 billion in 2011-12. Of that reduction in the deficit, a third, 10.5 billion, reflects a reduction in the current budget deficit. The rest is due to lower capital spending. More here.