Government borrow more in first quarter of financial year (£26bn) than it originally expected to borrow in the year as a whole (£24bn)

21 Jul 2016, by Geoff Tily in Economics

Public sector net borrowing for the first quarter of the current financial year (2016-17) was £26.6bn, down from £27.9bn over the same period of 2016/17.

On twitter the ONS are celebrating the lowest figure for the month of June since 2007. But this is hardly the point: the point of substance is the extent of the improvement relative to expectations. On this the government’s performance has been and remains disastrous.

Already the rate of improvement is significantly below that needed to meet the forecast made only a few months ago in the March 2016 Budget. Then the forecast for the current financial year 2016/17 as a whole was £55bn, a 23% improvement on 2015/16. The improvement in the year to date is only 8% – way short. But more important is the performance against original expectations. Borrowing for 2015/16 was first expected to be £24bn (November 2011). This annual total is already outstripped by borrowing in the first quarter.

Here’s how the expectations for borrowing has changed since spending cuts were originally imposed in June 2010.

Repeated upward revisions to borrowing follow as cuts hit growth and therefore tax revenues much harder than expected.

This effect on the economy means that cuts are wholly counterproductive from a macroeconomic perspective and well as disastrous socially. With cuts of the same scale currently planned for the current parliament, there can be no resolution to this vicious cycle. Obviously it was good sense to ditch the surplus rule, but it was pure fantasy to think that surplus would ever be restored on the present course.

To state the obvious: the threat from Brexit makes a change of course absolutely imperative – let’s hope they walk the walk.