Could borrowing be a lot lower by the election than anyone now expects?
Could borrowing be a lot lower by the election than anyone now expects? Two years ago, a series of blog postings on LFF by Daniel Elton and myself exposed the risk of a flatlining economy to the OBR’s predictions of falling borrowing.
Our predictions turned out correct as borrowing has also stubbornly stayed at £120bn. As a consequence, the OBR’s March 2013 prediction is for borrowing to remain above £100bn until the next General Election.
But the economy is beginning to show fitful signs of growth, and that is feeding into the borrowing numbers, hinting that borrowing may end up being a lot lower. Since January this year borrowing has been falling on a 12 month rolling basis. With today’s numbers, the total to September 2013 is £109bn.
That is versus a borrowing of £115bn for the year to March 2013, but more significantly, with the best tax month of the year yet to come in January, the government is borrowing at the level that the OBR was predicting it would achieve only by March 2014.
Chart: Public Borrowing Ex- on 12 month Rolling Basis
Borrowing had flat-lined from December 2011 until October 2012 (see graph) but at the turn of this year, borrowing began falling again.
Indeed, although it’s very early days yet, the pattern from January 2013 looks very similar to how the borrowing turned in late 2009. Then, from January 2010 to September 2010, 12 months rolling borrowing had dropped by £7.5 billion. This year, from January 2013 until September 2013, borrowing has fallen by a larger £13 billion.
If we extrapolate how the economy’s healing between 2009-2011 fed into borrowing from now through to March 2015 poses the question: avoiding the policy mistakes of 2011, could borrowing be a low as £80 billion by the General Election, versus an OBR prediction of £108bn?
If that’s the case, whose speech at Party Conference was too hairshirted?
The deficit debate may not have been put to bed, and the politics of an improving situation presents opportunities for both sides of the debate.
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