Has anyone seen George Osborne’s £3 billion? The Chancellor seems to have lost it. His government had expected to net £2.5 billion more than it spent last month, as July is normally a good month for tax receipts. Instead the figure has come in at a £600 million deficit. This is a major shock to the City, and analysts are spending today reworking their forecasts. Sure, we know the economy has flatlined. But we didn’t know that the impact on the tax haul would be so bad.
As you’d expect, Labour has gone on the attack. But the Ed Balls line (being voiced by Rachel Reeves today) sounds less convincing than ever. They say that Osborne is cutting too far, too fast, and that he should more slowly and, ergo, borrow more. But if too much debt is the problem, it far from clear that even more debt is the solution.
Today's figures are bad for Osborne, without a doubt. Economic data right now is erratic, and the slump in growth and tax revenues is difficult to reconcile with reasonable employment figures. But when City analysts get it this wrong, they normally rethink their assumptions, so another set of downgrades will likely follow. It’s worth remembering: according to Citi, the deficit will be a mammoth £106 billion in 2011/12. That is to say: each day the UK government is engaging in a debt-fuelled stimulus of £290 million. And is it working? It only seems to be stimulating the national debt. We are borrowing now more, each day, than any of the basket case Eurozone economies whom the Chancellor has grown so fond of lecturing.
If borrowing £290 million a day isn’t enough, then Balls should tell us: what is? Does he think things would be much better if we borrowed £320 million a day? This may very well be his position, in which case we'd all be interested in hearing his logic. Before the election, David Cameron rightly said that you can't borrow your way out of a debt crisis. In office, he is proving it.
PS Tim Morgan, from Tullet Prebon, makes the following point about state spending:
'Labour, of course, thinks it can pin the blame for the slump on public spending “cuts”. In fact, public spending has been £7.3 billion (3.5%) higher in the first four months of the current fiscal year than it was at the same point in 2011-12. Government revenue, on the other hand, has increased, albeit only very modestly.'