21 Aug 2012

Can the Treasury blame borrowing figures on North Sea platform?

Chloe Smith, the Treasury minister, today blamed the shock borrowing figure on the closure of a single platform in the North Sea – Elgin. And whilst it is true that North Sea revenues and corporation tax revenues were depressed in July, it would be wrong to say that it has been a one off.

Have a look at a comparison of the first four month’s borrowing over the past six years. On the face of it, this year is not so bad at £16.9bn, compared to the worst years of the crisis.

But this year’s figure is grossly distorted by the incorporation of the Royal Mail pension fund into the public accounts. Strip that out and you get £44.9bn borrowing this year, which is the second worst since the crisis, actually the second worst on record (in cash terms).

As Alan Clarke, economist at Scotia Capital pointed out, in the first four months of this fiscal year the average overshoot on borrowing has been £2.5bn per month. If things continue at this pace George Osborne could even see a deficit that is tens of billions of pounds over current targets. It is difficult to see Britain’s AAA remaining intact in such a scenario.

The Government did only borrow a few extra hundred million in July. The issue was that July is normally about paying down debts as it should be tax abundant. Social benefit spending is also growing at 7% versus 5.8% forecast.

Nomura was pretty scathing saying that both of George Osborne’s fiscal targets are in danger of being missed. This ratchets up the Coaliton conundrum ahead of the Autumn statement. Plan A+ – that is more benefit cuts to fund growth friendly capital investment, or Plan B, to just borrow more to fund that investment?

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5 reader comments

  1. Andrew Dundas says:

    Common-sense says that when there’s a downturn in revenues, the standard response is to try recover income with more marketing activity. Osborne’s policy is to cut back instead. Result: misery for everyone else.
    Common-sense also says that when households and public sector are urged/forced to cut their spending, it means businesses make less sales & profits and pay less tax and lay-off workers. [profits are pro-cyclical, which multiples the loss of tax revenues].
    Common-sense continues to tell us that higher unemployment/part-timers/phoney self-employed means more entitlement benefits have to be paid.

    But don’t expect common-sense to occur to Lord Snooty & frogs’ spawn.

  2. Philip Edwards says:


    This identifies another area yet to receive the public spotlight.

    Namely, given the economic “crisis” and its longevity, what did senior civil servants know and when did they know it? How did THEY behave? Did they collude in it all? Surely they couldn’t ALL have fallen asleep on the job as the building burned down around them? Or are they all totally incompetent?

    Watching Marcus Agius tell the parliamentary committee that he didn’t know what was going on at Barclays is by now an expected tedious performance. Diamond performed the same way. So did the Murdoch mafia.

    Are we supposed to believe the entire British establishment didn’t know what was being done to the country at virtually every level?

    And still nobody is in front of a court or in jail…….

  3. Philip says:

    I see they’re blaming everyone & everything except their own policies. It’s a financial strategy not an economic one – & of course Conservative Governments have long forgotten the idea that economic policies are inextricably linked to social policy outcomes.
    There are many cries for infrastructure investment. But if we do that, can we be sure that the large multinationals who win the business will actually employ British workers & train young people in the civil engineering, etc skills rather than getting Eastern Europan workers on the cheap?
    Our society is fractured by short-termism, greed & the desire for instant gratification/profits with the better-off who have wealth & relatively secure jobs screaming for more welfare cuts at the “lazy” have-nots. Only when everyone realises “we’re in this together” as a community, rather than looking out for ourselves, will we find permanent solutions to our problems.

    “The strong seem to get more, while the weak ones fade. Empty pockets don’t ever make the grade.” It doesn’t change, does it? It just goes to show that those who don’t need to learn from history (the rich & powerful) don’t.

  4. CWH says:

    What does it say about the state of the economy that just one oil platform closing down for a short time can deal such a blow to economic figures?

    The excuses are becoming ever more threadbare. What next by way of explanation for poor borrowing figures? The wrong sort of leaves perhaps?

  5. Charles Jurcich says:

    “Plan A+ – that is more benefit cuts to fund growth friendly capital investment….”

    If government cuts benefits by, say, £10Bn and this has a spending multiplier of, say, -1.4 and they then use that for investment with a multiplier of, say, 2.0 then that £10Bn will only generate £6Bn in growth.

    I don’t think that would help George out much – it needs to be a plan B.

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