This week’s borrowing figures were a pleasant surprise. The government recorded its biggest monthly surplus in four years in January: £7.8bn. Borrowing for 2011-2012 is now expected to meet, or undershoot, chancellor George Osborne’s £127bn target (down from £136bn the previous year) by up to £9bn. That would still mean an annual budget deficit of 7.8% of GDP, compared to an 11% annual overspend two years ago.
What the commentators said
With his deficit-reduction plans moving “slightly ahead of target”, Osborne “has reason to be happy”, said Allister Heath in City AM. “Even better was the reason for the improvement”: spending restraint. In cash terms government spending has grown by just 1.6% this fiscal year, compared to a forecast of 3.1%. While spending is under control, tax receipts have slowed, so the deficit isn’t being reduced by “clobbering taxpayers even more”.
That tax revenues have been weaker than expected suggests that the 50p tax rate may be losing the government money rather than raising the £3bn in 2011-2012 the Treasury expected, said Hamish McRae in The Independent.
In January, income and capital-gains tax receipts were just 0.9%, or £230m, higher – disappointing considering that self-assessment payments are due in January, so it should be an especially strong month. But if the figures show anything, “it’s the capacity for far more savings to be made by the government machine”, said Fraser Nelson on Spectator.co.uk. The government has reined in spending by £9bn “without even meaning to”. So “imagine” the money that could be saved if the “government” deliberately targeted more savings.
Nonetheless, this still doesn’t give Osborne much scope for giveaways, said Chris Giles in the FT. We can’t assume that the accidental spending undershoot will continue and the slowdown in the economy, which shrank last month, threatens revenues. It’s going to get harder to reduce borrowing, agreed Capital Economics. For now, though, Osborne can say that his plan is on track.