A mixed bag for public sector finances says ITEM Club - borrowing increased in December but was offset by downward revisions in previous months
Nida Ali, economic advisor to the EY ITEM Club, comments on today’s public sector finances figures:
- Today’s figures are a mixed bag; borrowing increased in December, but this was more than offset by downward revisions in previous months
- But the increase in government spending is a step in the wrong direction
- Accounting for the various statistical changes in the Autumn Statement, the government may well meet the OBR’s borrowing forecast for 2012/13
“These figures are a mixed bag. On one hand, borrowing in December was £0.6bn higher compared to last year. However, downward revisions to borrowing in previous months have meant that the deficit in the financial year-to-date is slightly narrower than what was reported in November. This continues the pattern we’ve seen in recent months, where the borrowing figures have initially looked much worse and then been revised down over time.
“There is good news and bad news in the breakdown of revenues and spending as well. For instance, revenues on VAT increased by almost 5% on a year ago, which is stronger than expected given that retail sales in December were quite weak. On the flip side, the rate of increase in central government’s overall spending far outpaced the increase in tax revenues, which is obviously a step in the wrong direction.
“Overall, the picture for UK’s public finances remains pretty similar to previous months. The OBR expects borrowing to fall in 2012/13 compared to the last financial year. And after accounting for the various statistical changes announced in the Autumn Statement, such as the impact of the repatriation of the QE profits and the reclassifications of Northern Rock and Bradford & Bingley, the Government may well meet the OBR’s borrowing forecast in 2012/13.
“However, in our view the Government needs to adopt a more innovative approach to fiscal policy. Increasing spending on infrastructure could be a real game changer for UK growth, but the £5bn announced in the Autumn Statement simply didn’t go far enough. The upcoming Budget in March presents the Chancellor with a perfect opportunity to change the course of fiscal policy to make it more pro-growth, and we hope that this time he doesn’t disappoint.”