First, the better than expected surplus of £7.8 billion in January puts the UK government on course for a lower than forecast deficit for the financial year, the best counter that Chancellor George Osborne could have against the decision by rating agency Moody’s a fortnight ago to put the UK on “negative credit watch”. And second, the figures – the last set to be produced before the budget on 21 March – provide more room for him to offer a recovery stimulus by way of tax reduction. The scope, however, is severely limited: the deficit reduction programme has years to run and the Treasury will argue ferociously against what could prove a temporary improvement in the deficit numbers being used as a basis of a headline-grabbing giveaway. But, together with tentative signs of an improvement in the economy, the coalition will at least be able to point to an improvement greater than most had dared to hope for just six months ago.
The overall position is this. The January surplus (always a good month for the public finances as companies and individuals act before the 31 January deadline to settle outstanding tax bills) is well up on the figure for January a year ago. It brings the cumulative deficit for April-January to £93.5bn, a reduction of £15.6bn from the comparable figure a year ago.
This decline in the deficit sets the Chancellor up for a final figure for the financial year considerably better than that expected by the Office of Budget Responsibility: it projected that the deficit will fall from £135.8bn in 2010-11 to £127.1bn in 2011-12.
Economists’ estimates of how much the final out-turn will be better than the OBR projection vary from £5bn up to £10.5bn. Given the worrying slowdown in the economy in the third and fourth quarters of last year, any out-turn which came in on the right side of the OBR forecast can fairly be regarded as an achievement. Particularly heartening is a 9.3 per cent increase in corporation tax receipts on last January. And local authorities seem to have cut their spending rather faster than had been assumed in the Pre Budget Report
That, however, does not give the Chancellor licence to gamble. One favourable month cannot be taken as a guarantee of improved performance in the year ahead. Nevertheless, the economy is so frail and the recovery so tentative that a reduction in the tax burden is surely due. Mr Osborne could follow the advice of Nick Clegg and raise the starting threshold for tax to £10,000. This would certainly be popular. Or he could cut corporation tax by more than planned. However, given the continuing rise in unemployment and concern over youth unemployment in particular, there would be merit in cutting National Insurance. Any reduction in the tax on jobs for employees and employers would be warmly welcomed and difficult for Labour to criticise as a reckless giveaway. A boost to labour hiring would be apposite and timely.
Some light but only a little illumination
It would be fanciful to present the statements from Rangers’ owner Craig Whyte and the administrators as piercing lights of transparency. But at least a veil of sorts has been lifted on the mystery of the season ticket holders’ funds of £20 million plus VAT which fans paid to Ticketus.
Of this, some £18m was transferred to Lloyds Banking Group as bridging finance to enable Mr Whyte to complete the take-over (the whereabouts of the balance is still under investigation). In his statement, Mr Whyte protests that he has acted in the interests of the club; that he personally was on the line for £27.5m in guarantees and cash; that he followed expert legal and financial advice; and that he has been subjected to press misinformation and abuse. Much of this could have been avoided had he been more open and transparent far earlier.
That he may dislike such disclosure is curious for someone aspiring to the ownership of a leading Scottish club whose affairs are intensely followed here and overseas. At least his statement sheds light, up to a point, on what was a deeply troubling mystery. He adds that if he emerges from administration still in control of Rangers – a telling condition – he will give “immediate consideration” to gifting the majority of his shares to a supporters’ foundation. Even taken at face value, this is likely to divide fans as to whether it has been made too early in the proceedings or far too late. Meanwhile the administrators are continuing to probe “all the circumstances surrounding both the purchase of the majority shareholding” and “the flow of funds which stemmed from the transaction”. Judgment must await.
Not too far down line to abandon rail project
What is it about Scotland and major building projects? From the Scottish parliament to the Edinburgh trams, we do not seem to be able to get things done either on budget or on time. Or both. Guess what? Yes, it has happened again. Now the Borders rail link is to be delayed by another year.
Industry experts told this newspaper the Scottish Government’s decision to appoint Network Rail to take over the project after the original private sector scheme failed because of the lack of bidders is the main reason for the delay and there is “not a hope in hell” it will be completed by the end of 2014 as planned.
In this space previously we have often be critical of the rail link. We said it was ill-conceived; that studies of likely passenger numbers taking what will be far from an express to Galashiels did not stand up to scrutiny; and there was little to prove there was much demand beyond Gorebridge, Midlothian. To those criticisms we can now add that it will not be finished on time. We rest our case.
The Borders rail link was agreed in a shameful political deal by Labour and Liberal Democrats in government, carried on by the SNP. Even at this late stage, the Scottish Government should abandon its plans to press ahead with this scheme beyond Midlothian.