LAST week’s fall in public sector borrowing boosts the Conservatives’ fiscal credibility just ahead of the general election. Or doesn’t boost it, depending where you draw the line and from which political corner you are entering the electoral boxing ring.
The good news is that public borrowing, cutting out the impact of bank bailouts, was £87.3 billion for the year to end-March, down £11bn in the last financial year and nearly £3bn below the target set by the independent Office for Budget Responsibility at the time of last month’s budget. The public deficit has halved as a share of GDP during the course of this parliament.
But context is important. In the coalition government’s emergency budget in 2010 it promised to reduce public borrowing from £153bn to £37bn by this stage. The target was a bid to win over the population to the idea that although there would be austerity pain, a significant dent would be made in public borrowing over five years.
We are many tens of billions of pounds shy of that pain-laced-with-progress promise, a magnitude that would not be seen as conferring financial credibility in most business circles. Instead, deficit reduction and public austerity will continue to be the elephant in the room for the next few years at least.
Many leading think-tanks, including the Institute for Fiscal Studies, are also right in saying no political party has put adequate flesh on the bones of what will be cut – or taxes raised – in the next parliament.
The Tories and Labour, in particular, are treading carefully because they probably think it would create an unnecessary hostage to fortune with voters to do otherwise.
Last week’s borrowing figures are fortunate timing for a Conservative party that most people think they can trust more on the economy than Labour. The latter is stronger in areas such as welfare and the NHS.
And, to be fair to the coalition government, the British economy had its own headwinds to contend with until 2013, reducing the tax receipts that would have helped to cut the deficit faster.
Equally, Britain could not have foreseen or been immune to the problems in the Eurozone, including the sovereign debt crisis and virtual economic stagnation.
In short, this week’s better news on UK public borrowing is a timely little fillip for the coalition, but is not even remotely game-changing in the wider picture.
Business organisations such as the Confederation of British Industry and British Chambers of Commerce are adamant that whichever government gets past the post first needs to stay the course on deficit reduction.
They believe it is the bedrock for spreading business confidence, giving homegrown companies incentive to expand and encouraging GDP-boosting foreign investors to our shores.
Unfortunately, it will come with more pain, with the public sector in the headlights. «