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?

Follow @faisalislam on Twitter.