Tuesday, July 20, 2010

It's Still Getting Worse

No improvement

When it comes to our horrendous fiscal deficit, the Labour Party, the BBC, and the rest of the left have long argued that we can afford to wait before starting with the knife. Today's rather nasty public borrowing stats underline just how deluded (and self-serving) that argument is.

Because once you strip out the effects of the various financial sector support operations - which the government insists are temporary - then borrowing in the first 3 months of the current financial year was actually higher than that in the same period last year. And that despite the fact that the economy almost certainly grew over the period (we'll get the official GDP update on Friday).  And despite the fact that public sector investment spending went down.

So what happened?

What happened was that although tax revenues increased by £8bn - boosted by a £4bn jump in receipts from the higher rate of VAT - all of that increase was used up covering a 6% increase in current spending.

6%! Can they be serious? Here in the midst of Austerity Britain, HMG has somehow allowed its current spending to roar away by 6%? WTF are they doing?

For sure, some of it is accounted for by an increase in the welfare bill, as might be expected with higher unemployment. But when you scrutinise the figures, you find that only acounts for 1% of the 6% overall increase.

The rest?

Well, spending on goods and services (staff and procurement) rose by 3%. Which is somewhat alarming, given all the talk of budgets being pared to the bone.

But the biggest contributor - by far - was the explosive growth of debt interest payments. The ONS says these grew by a pant-wetting 54%.

54%.

We've blogged the looming debt interest crisis many times (start here). And at the risk of boring you, let's just remind ourselves of the key point - the longer we go on running these horrific deficits, the worse it's going to get. Our outstanding debt will increase, and there is always that risk that the markets will take fright and rack up the interest rate they demand from HMG.

And even though George has announced tight targets for spending cuts than Darling ever did, the debt interest bill is set to spiral anyway.


So next time the BBC tells you we can afford to wait before facing reality, remember this. Remember that the debt interest bill is already sending shockwaves through the public sector accounts, and that we're picking up the tab.

PS It turns out Tyler Senior is the future. No, straight up. He may be 85, but age is all in the mind - he's still the future. You see, he lives in the Royal Borough of Windsor and Maidenhead, and the Royal Borough is one of the four local authorities picked to trail-blaze Cam's Big Society idea - the idea that local authorities, volunteer groups and charities should take over the running – and the budget – of local services, away from the dead hand of central government. And as it happens, Tyler Snr is in pole position to take a leading role. Because he is already one of the driving forces behind a highly active and well-supported community group - precisely the kind of operation on which Cam is going to base the future. Time to find out how you milk get funding from Cam's Big Society Bank.

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