This morning’s public sector borrowing numbers out of the UK represent another body blow for a Chancellor who is fighting an increasingly lonely rearguard action against both internal and external forces agitating for some loosening of the fiscal noose. Britain recorded a budget deficit in July, traditionally a month where corporation tax receipts help to produce a decent surplus. Revenue fell by nearly 1% in the month, a function of much-reduced corporate tax receipts resulting from the closure of the Elgin gas field. Worryingly, government spending rose by more than 5% in July.
Excluding the transfer of Royal Mail pension assets to the public accounts back in April, the deficit for the first four months of the current fiscal year is just under GBP 45bn, well above the GBP 35.6bn deficit registered in the comparable period of last fiscal year. Given the over-run already suffered so far this year, the Chancellor will recognise that achieving his projected deficit target of GBP 120bn is already looking very unlikely.
Fundamentally, George Osborne has two problems. Firstly, the containment of spending is simply not happening quickly enough. Secondly, he needs to find a fiscally-neutral way of stimulating growth, never an easy task when both consumers and businesses are this cautious.