The shortfall from the sale of 4g broadband capacity means chancellor George Osborne will be under increasing pressure to make greater cuts.
A short term consequence of George Osborne’s failure to secure the expected money from the sale of 4G mobile spectrum – the sale raised £2.34 billion rather than the predicted £3.5 billion – will probably be greater government borrowing.
The treasury is now facing a £1.2 billion shortfall as a consequence of failing to secure the expected amount.
The prediction that the 4G sale would raise £3.5 billion was included in Osborne’s last Autumn statement to show that borrowing would not need to rise this financial year.
The fact that profit on the sale fell short by almost a third implies borrowing will now rise to make up for that shortfall.
Earlier this month, The Institute of Fiscal Studies (IFS) said the coalition had borrowed £64billion more than it had originally predicted in 2010. It also warned that whoever was in power after the 2015 election would need to find around £50billion to sustain public finances.
In this context, the extra billion that the chancellor will now need to find is relatively small fry.
It adds, however, to the growing sense that finances are spiraling dangerously out of control on Osborne’s watch.
Politically this is good for opposition parties, but it is worth remembering that within the coalition Osborne is under more pressure from the right than from the left.
As Left Foot Forward reported last week, the failure of austerity to bring with it a return to prosperity has had the perverse effect of emboldening the tory right, who are now putting pressure on the chancellor to make further swingeing cuts.
When the latest borrowing figures come out tomorrow it’s worth keeping an eye out for more short-termist, 4G-like attempts to distract from the trend towards increased borrowing.
Also keep an eye on Osborne’s critics on the tory right, who are salivating at the prospect of further cuts and are starting to get a hearing in the Conservative Party, ironically, due to the failure of a version of their own brand of economics.
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31 Responses to “Osborne’s missing 4G billion increases pressure for cuts”
LB
More borrowing now, means bigger cuts later.
The money has to be repaid with interest.
Hasn’t Labour learned from the Tories that you can’t borrow your way out of a mess?
e.g. We’ve had 150 bn a year of Keysnian borrow and spend. I don’t notice the promised growth.
Spain borrowed and spent. High speed rail, solar, and housing. That’s they current prescription from the left for solving the mess. So why is Spain in such a dire situation? They done what Labour advises.
You need to explain why that policy will work here.
robertcp
The fiscal stimulus did work in that it helped us to avoid total catastrophe in 2008-10. Darling planned to start cutting the deficit in 2011 and to halve it by 2015. The Con-Dems decided that was too slow, so they started cutting the deficit in 2010 with the aim of eliminating the deficit by 2015. This has stopped the economy growing since 2010 and it looks like the deficit will be higher this financial year than last. Of course, we will never know whether the Darling Plan would have worked but we do know that the Con-Dems will be lucky to halve the deficit by 2015.
My view is that the deficit needs to be reduced at a rate that still allows the economy to grow. Trying to cut the deficit quicker is actually counter-productive.
LB
The problem is that the stimulus should have produced growth according to Keynes. 150 bn of borrowing and spending is a massive stimulus. It hasn’t worked. Just has it hasn’t worked in Spain as just one example. Or Japan for another.
That’s pretty strong evidence that the Keynsian stimulus concept in now is the wrong medicine. You just have to look at the underlying cause of the 2008 banking crisis. It was that people had borrowed and spent too much, and didn’t pay their debts.
Now we have governments borrowing and spending to somehow cure a problem, caused by borrowing and spending too much. It’s voodoo.
Growth won’t fix the problem either. If the government maintains spending at real levels, and the Condims have increased spending in real terms, that means they need to tax people more. Not particularly good for growth. So the usual argument is that its not existing tax payers, its getting people back into work, and then they will pay tax, and we don’t pay them benefits.
So 150 bn is to somehow come from the unemployed. Hmm, even if we get a million back to work at 15K each in benefits not being paid, and taxation from them (about the level for a min wage job), that’s only 15 bn. Who is going to pay the other 150 bn plus interest?
So the condims won’t halve the deficit. You’ll get the weasel word of structural or cyclical trotted out, and fiddling of the numbers. Labour won’t.
So that means paying back the cash with interest. They can’t so they will just print it to write it off. That’s what Mervyn King has realised. QE will never be repaid, so print it. The problem is that QE went on Gilts. The money from Gilts was spent. No one was lending to the UK government. QE = Gilt Issuance since 2008 as near as damn it.
So you’re left with massive cuts. The only plan, is it forced or is it planned.
robertcp
I disagree for the reasons that I have already given.
LB
You’ve not given any reasons. You’ve just waffled.
Put some numbers to your argument, and you will see its baloney.
The real problem is that we have raised taxes, and that’s killed off any growth.
Growth itself cannot cure the government’s finances.
It’s spending 150 bn more than it taxes. 700 bn of spending on taxes of 550 bn. A 30% overspend.
How many years of 2% growth will it take to wipe that out? Remember that the spending has been going up above inflation.
So its going to be default, all because the state sector wants it now .End result going forward, you won’t have it.
That’s particularly shit for the people who really need the state to help them.