The Institute for Fiscal Studies have said today’s public sector finance figures (pdf) will result in a feeling of “déjà vu” for the chancellor, warning if trends continue for the remainder of the financial year, borrowing will come in £13 billion higher than forecast by the OBR in March.
Responding to the ONS’s Public Sector Finances, October 2012 (pdf), the IFS’s Rowena Crawford said:
“Today’s figures will likely result in an unpleasant feeling of déjà vu for the Chancellor as he prepares for next month’s Autumn Statement.
“As was the case last year, a worse-than-expected decline in corporation tax receipts in October has contributed to an overall picture of lower-than-expected growth in revenues so far this year. Spending on the administration and delivery of public services has also again grown more slowly so far than forecast for the year as a whole.
“Last year the level of underspending was sufficient to offset the lower than forecast growth in revenues at this point in the year, leaving borrowing looking broadly on course to meet the previous forecast. However, this year the potential spending undershoot looks to be able to offset only partially the weaker–than−expected receipts.
“If the trends in central government receipts and non-investment spending were to continue for the remainder of 2012−13, borrowing would come in £13 billion higher than forecast by the Office for Budget Responsibility in March.”
If trends continue, the IFS forecasts:
• Public sector net borrowing during the first seven months of 2012–13 was £75.6 billion (excluding the impact of Royal Mail and the SLS), which is 10.8% higher than the amount borrowed during the same period last year. If this level of growth in borrowing were to continue for the remaining five months of this financial year, borrowing for the whole of financial year 2012–13 would be about £134 billion, some £12 billion higher than the OBR forecast in March for borrowing (excluding the impact of Royal Mail and the SLS) in 2012–13.
• Adjusting separately for trends in central government receipts and spending, whilst assuming that the OBR is correct in its forecasts for borrowing by local authorities and public corporations and the amount of public sector net investment this year, suggests a similar figure of £135 billion. This is £13 billion higher than the £122 billion forecast by the OBR in March for borrowing (excluding the impact of Royal Mail and the SLS) in 2012−13.
• However, this figure assumes that central government departments fail to spend around £4 billion of their budgets this year. Were they instead to spend their budgets fully, borrowing this year would overshoot the OBR’s March 2012 forecast by £17 billion.
Politically, today’s figures represent another boost for Ed Balls, as Larry Elliott notes in The Guardian:
The state of the economy (and the government’s opinion poll ratings) means that it would be a brave chancellor who would go for more austerity at this stage. Instead, Osborne will make the best of a bad job with growth boosting infrastructure measures balanced by cuts in current spending, coupled with an embarrassing acceptance that it will take longer than expected to turn the public finances round.
There are no good options, and self-evidently, the autumn statement will not be an easy occasion for the chancellor. Balls, on the other hand, will be looking forward to it with relish.