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Sustainable Economy > Published by Cormac Hollingsworth, July 27th 2011 at 11:29 am

The coalition could end up borrowing more than Labour

The economic argument about the timing and extent of the cuts has always been an argument about how best to cut the deficit. Many imagine this argument will be settled when we look at the numbers in March 2015.

George-Osborne However, it may actually be decided by what happens in the next nine months. That is because what happens this year, in revealing the economy’s capacity to generate tax receipts and the coalition government’s ability to control spending, will ripple through the next four financial years.

If the economy continues to stagnate, the coalition could borrow more than Labour this year.

Prior to the Osborne June Budget, the Office of Budget Responsibility made a prediction (see pdf) of what Alistair Darling’s borrowing would have been for fiscal 2011; they estimated borrowing of 8.3% of GDP with a growth rate of 2.6%.

Borrowing would then fall to 3.9% of GDP by 2014/15. It’s of more than passing academic interest that while the OBR thought borrowing would fall more than Mr Darling’s halving of the deficit promise.

It is of more direct relevance that if the government borrows more than 8.3% this year – more than Labour would have – then it will make it much harder for them to reach their commitment to eliminate the deficit.

The coalition’s spending plans are factored into the OBR’s new predictions that have followed the June budget, the November spending review and the March budget. Each time they made a lower prediction of growth for 2011 and a higher prediction for borrowing. Graph 1 below shows how the OBR estimates borrowing changes with growth.

The Treasury has indicated consensus growth for 2011 is 1.3%. Growth at that level for fiscal 2011 would result in borrowing of 8.15% of GDP, just below that predicted for Mr Darling’s budget.

From the OBR’s estimates we can project that if growth for fiscal 2011 is below 1.1% then we could be in a scenario where the coalition is borrowing more than Labour.

Graph 1:

George-Osborne-growth-headache
A word of caution, however, is needed.

Next month is a high month for tax receipts because many companies pay their corporation tax in June, so one must be careful not to read too much into what is going on in the economy. Nonetheless, by this time in 2010, borrowing was already £1.8 billion below 2009 borrowing; the borrowing numbers reported last week show borrowing only managed to fall by £370 million so far this year.

For Public Sector Net Borrowing to fall to the OBR’s prediction of £122 billion, the government must borrow £6.25 billion less in each of the final three quarters of fiscal 2011. That could be a tough target.

In fiscal 2010 that borrowing reduction was only achieved in the final quarter, January-March. Time will tell, but there’s clearly a chance the government is about to lose control of public borrowing.

So what will it mean if stagnant growth keeps the deficit too high, with levels of borrowing higher than under Labour? This will be a sign of collapsing confidence in both the business and consumer sectors, and fear of this scenario is obviously what is driving Labour’s plan B.

But if confidence does indeed continue to fall there will need to be a rethink on both sides of the aisle over what policies will re-engage the private investment that would be needed to stop the economy from stagnating with high borrowing.

Two related policies suggest themselves: a National Investment Bank as suggested by Gerald Holtham and Lord Skidelsky, together with a Co-operative Housing Bank. The institutions themselves would take time to set up, so the government would need to partner with existing banks to distribute the initial loans, but they do offer us a road out of this avoidable downturn.

http://twitter.com/natandoron/status/96165739563728896 Natan Doron

The coalition could end up borrowing more than Labour: http://t.co/ZnVmGuE writes @CormacHolly < Shambles government via @leftfootfwd
http://twitter.com/manishtas/status/96165781955559424 manishta sunnia

RT @leftfootfwd The coalition could end up borrowing more than Labour: http://t.co/zJWpYLi #ukgovt #nocuts #debt
http://twitter.com/bipolarbearmd/status/96166329844895744 TheBiPolarBearMD

The coalition could end up borrowing more than Labour: http://bit.ly/qn6pMz writes @CormacHolly
http://twitter.com/cuchulaindundee/status/96166470911922176 Alan Cowan

The coalition could end up borrowing more than Labour | Left Foot Forward http://bit.ly/nBFdBU
http://twitter.com/magic_torch/status/96166530643017728 Mr W.H.

The coalition could end up borrowing more than Labour: http://bit.ly/qn6pMz writes @CormacHolly
http://twitter.com/cormacholly/status/96167053307817984 Cormac Hollingsworth

My 1st posting on @leftfootfwd: The coalition could end up borrowing more than Labour: http://t.co/DKudHKa,
http://twitter.com/mtiedemann/status/96167115433852928 Martin Tiedemann

My 1st posting on @leftfootfwd: The coalition could end up borrowing more than Labour: http://t.co/DKudHKa,
http://twitter.com/coopparty/status/96167119045148673 Co-operative Party

My 1st posting on @leftfootfwd: The coalition could end up borrowing more than Labour: http://t.co/DKudHKa,
http://twitter.com/kevinward76/status/96168432877314050 Kevin Ward

Borrowing is good isn't it? RT @leftfootfwd: The coalition could end up borrowing more than Labour: http://bit.ly/qn6pMz writes @CormacHolly
http://twitter.com/paulcrutchley/status/96169006297387009 Paul Crutchley

The coalition could end up borrowing more than Labour: http://bit.ly/qn6pMz writes @CormacHolly
http://twitter.com/lizajthompson/status/96171993942073344 Liza Thompson

The coalition could end up borrowing more than Labour: http://bit.ly/qn6pMz writes @CormacHolly
http://twitter.com/ohhhkevin/status/96172262293651456 Kevin McNamara

Borrowing is good isn't it? RT @leftfootfwd: The coalition could end up borrowing more than Labour: http://bit.ly/qn6pMz writes @CormacHolly
http://twitter.com/jonathanpsadler/status/96172935856918529 Jonathan Sadler

RT @leftfootfwd Coalition may up borrowing > lab: http://bit.ly/qn6pMz @CormacHolly. They'll blame it on Labour & their 'special factors'.
http://twitter.com/wdjstraw/status/96176016153772033 Will Straw

Great blog from ex-banker Cormac Hollingsworth: low growth raises borrowing so coalition cld borrow more than Labour: http://t.co/AA6akwq
http://twitter.com/marcusaroberts/status/96176490881892352 Marcus A. Roberts

My 1st posting on @leftfootfwd: The coalition could end up borrowing more than Labour: http://t.co/DKudHKa,
http://twitter.com/joerichlaw/status/96177146753589248 Jonathan Rich

Great blog from ex-banker Cormac Hollingsworth: low growth raises borrowing so coalition cld borrow more than Labour: http://t.co/AA6akwq
http://twitter.com/lucahelvetica/status/96177238315245568 LucaHelvetica

Great blog from ex-banker Cormac Hollingsworth: low growth raises borrowing so coalition cld borrow more than Labour: http://t.co/AA6akwq
http://twitter.com/marcusaroberts/status/96177301959622656 Marcus A. Roberts

Great blog from ex-banker Cormac Hollingsworth: low growth raises borrowing so coalition cld borrow more than Labour: http://t.co/AA6akwq
http://twitter.com/bipolarbearmd/status/96177999107473408 TheBiPolarBearMD

Great blog from ex-banker Cormac Hollingsworth: low growth raises borrowing so coalition cld borrow more than Labour: http://t.co/AA6akwq
http://twitter.com/andrewlomas/status/96178941034889217 Andrew Lomas

Great blog from ex-banker Cormac Hollingsworth: low growth raises borrowing so coalition cld borrow more than Labour: http://t.co/AA6akwq
http://twitter.com/jonewilson/status/96179119494144000 Jon Wilson

Brilliant piece by @CormacHolly: Osborne will increase debt + why we need a National Invest't Bank and Co-op Hous'g Bank http://t.co/KWxtU2C
http://twitter.com/danielelton/status/96181734785294337 Daniel Elton

The spectre haunting Osborne – Coalition end up borrowing more than Darling would have http://t.co/j7Dk6M0 – @CormacHolly on @leftfootfwd
http://twitter.com/therightarticle/status/96182936604393473 Michael

The coalition could end up borrowing more than Labour l Left Foot Forward – http://j.mp/onARZx
http://twitter.com/bipolarbearmd/status/96183189680291840 TheBiPolarBearMD

The coalition could end up borrowing more than Labour l Left Foot Forward – http://j.mp/onARZx
http://twitter.com/alexcd88/status/96199083567489025 Alex Canfor-Dumas

Well this would be ironic: http://t.co/uZ0BgL9
http://twitter.com/petejefferys/status/96200471018078209 Pete Jefferys

Cormac's written a good article on how govt could end up borrowing as much as Labour were projected due to low growth – http://t.co/URpTUlu
http://twitter.com/ldtuc/status/96205829950283776 L DTUC

The coalition could end up borrowing more than Labour: http://bit.ly/qn6pMz writes @CormacHolly
http://twitter.com/davidnash1/status/96213617761980416 David Nash

good piece @leftfootfwd on Govt's low growth, higher borrowing dilemma. Priority now is to stimulate private investment http://t.co/JY9Mx4K
Anon E Mouse

The coalition will end up borrowing more than Labour – everyone thinks Thatcher cut taxes yet (initially) she never did.

Fraser Nelson has it right about the spending I feel and apart from a few Labour activist nutters who would frankly swear black was white – matthew fox, Leon Wolfson and loners of that ilk spring to mind – everyone knows what is going on here and it’s all government spin…
http://twitter.com/daryn_mccombe/status/96219206353289216 Daryn McCombe

The coalition could end up borrowing more than Labour | Left Foot Forward http://t.co/a2S6GKf
http://twitter.com/owenjones84/status/96219807355117568 Owen Jones

The coalition could end up borrowing more than Labour | Left Foot Forward http://t.co/a2S6GKf
http://twitter.com/tbird1987/status/96220160033165312 Tom Marshall

The coalition could end up borrowing more than Labour | Left Foot Forward http://t.co/a2S6GKf
http://twitter.com/matthewjorda/status/96224024505483265 matthew jordan

Great blog from ex-banker Cormac Hollingsworth: low growth raises borrowing so coalition cld borrow more than Labour: http://t.co/AA6akwq
http://twitter.com/norrettem/status/96224372867596290 Norrette Moore

The coalition could end up borrowing more than Labour | Left Foot Forward http://t.co/a2S6GKf
http://twitter.com/shirazc/status/96238257897082880 Shiraz Chakera

"If the economy continues to stagnate, the coalition could borrow more than Labour this year" http://t.co/dAttt2c
http://twitter.com/alison_mcgovern/status/96238467557769217 Alison McGovern

Required Reading: Coalition could end up borrowing more than Labour >> http://t.co/wN12JuP from the very insightful @CormacHolly #fb
http://twitter.com/davem__/status/96239478166929409 Dave M

Required Reading: Coalition could end up borrowing more than Labour >> http://t.co/wN12JuP from the very insightful @CormacHolly #fb
http://twitter.com/amtweetypie/status/96239586111524864 Anne-Marie Hughes

Required Reading: Coalition could end up borrowing more than Labour >> http://t.co/wN12JuP from the very insightful @CormacHolly #fb
http://twitter.com/paulcall1/status/96239958708330499 Paul Callaghan

Required Reading: Coalition could end up borrowing more than Labour >> http://t.co/wN12JuP from the very insightful @CormacHolly #fb
http://twitter.com/mustberead/status/96240126165925888 MustBeRead

From @CormacHolly at @LeftFootFwd: The coalition could end up borrowing more than Labour – http://t.co/y9k0xDc
http://twitter.com/benpowell87/status/96241689215238144 Ben Powell

RT @leftfootfwd: The coalition could end up borrowing more than Labour http://t.co/LfYmzJr
http://twitter.com/hocwatch/status/96242267790127105 houseofcommonswatch

Required Reading: Coalition could end up borrowing more than Labour >> http://t.co/wN12JuP from the very insightful @CormacHolly #fb
http://twitter.com/labouruncut/status/96245390793388033 Labour Uncut

From @CormacHolly at @LeftFootFwd: The coalition could end up borrowing more than Labour – http://t.co/y9k0xDc
BenM

Anon E Mouse, that is poor, even by your standards.

Fraser Nelson has never been right. And he hasn’t started now.

The amount of people believing Osborne can manage down the deficit – and in the longer term borowing itself – under the current strategy is dwindling as the actual numbers come in.
Anon E Mouse

BenM – If it’s poor by my standards when all it is is a link to someone else’s opinion then I’m OK with that.

But the figures speak for themselves BenM and I’d ask you the following which can be answered by a simple YES or NO.

Is borrowing so far higher under this government for the same period as Labour borrowed going back in the same time periods? Have the coalition borrowed more this quarter than Labour did in 2009?

The answer is they have borrowed MORE making Fraser Nelson right and therefore you are wrong.

Despite it’s rhetoric this government is on track to borrow more than the last one. I’m not discussing why, just stating a fact…
Leon Wolfson

And again, we see Mouse trotting out his enemy list for public display.

The fact that it’s self-evident that the government is digging itself into a hole on growth, you have to – as usual – be bitter and spiteful about it.

Simply because the government are throwing money into expensive pet projects and redundancy payments doesn’t mean that the cuts are not well under way either. Cuts AND more spending – Mouse’s dream world.
http://twitter.com/jimpurnell/status/96267950377545728 James Purnell

From @CormacHolly at @LeftFootFwd: The coalition could end up borrowing more than Labour – http://t.co/y9k0xDc
http://twitter.com/rincewinduk/status/96278214133030912 Mike Ranscombe

Required Reading: Coalition could end up borrowing more than Labour >> http://t.co/wN12JuP from the very insightful @CormacHolly #fb
Anon E Mouse

Leon Wolfson – As a Top Secret Agent working for MI5 or whoever it is this week may I suggest that you start actually reading the articles here before you offer your opinion.

This government, as the writer of this article correctly asserts, is borrowing MORE than Labour did.

Unless of course you have another of your conspiracy theories which claim otherwise. Perhaps in your high level meetings with ‘M’ or James Bond they gave you some information the rest of us are unaware of.

In the meantime: WATCH OUT FOR THE MONSTERS IN THE BUSHES BEHIND YOU WOLFY!!! MWHAHAHAHA – Sorry couldn’t resist it again
http://twitter.com/bermoldsthklab/status/96286052687413248 Berm&OldSthwrkLabour

Coalition could end up borrowing more than Labour @CormacHolly in @leftfootfwd http://t.co/cTVUY9I
Leon Wolfson

Yes, yes, you can copy/paste your madlibs. That’s about the competence level you have generally, it seems.

Go away BNP boy, adults are discussing issues. You can’t even read my posts, of course, because I certainly didn’t dispute the facts, but pointed out WHY.
http://twitter.com/cllrkrichards/status/96345170173366272 Kevin Richards

What legacy will you leave after 5 years David & George – The coalition could end up borrowing more than Labour http://t.co/MCfwqC1
Anon E Mouse

Leon Wolfson –

—- I AGREE WITH THE AUTHOR OF THIS ARTICLE – HE IS RIGHT IN HIS ASSERTION THAT THIS COALITION IS SPENDING MORE THAN THE LAST LABOUR GOVERNMENT—-

PLEASE read the article BEFORE you criticise me for AGREEING with the author and his article.

In the meantime: WATCH OUT FOR THE MONSTERS IN THE BUSHES BEHIND YOU WOLFY!!! MMMMWWWWHAHAHAHA!!
http://twitter.com/karleastham/status/96482749917052928 Karl Eastham

Coalition could end up borrowing more than Labour @CormacHolly in @leftfootfwd http://t.co/cTVUY9I
Richard

“and loners of that ilk spring to mind”

Speak for yourself Mickey Mouse. All you do all day every day is sit on the web, alone with your computer,commenting on any political site going. Now that is a sad life.
http://www.leftfootforward.org/2011/08/osbornes-march-of-the-makers-is-beating-a-retreat/ Osborne’s ‘march of the makers’ is beating a retreat | Left Foot Forward

[...] sector fell in July. This was the first contraction since July 2009, but also followed bad figures for the economy last week as a [...]
http://twitter.com/holmespf/status/99178894736896000 Paul F Holmes

Required Reading: Coalition could end up borrowing more than Labour >> http://t.co/wN12JuP from the very insightful @CormacHolly #fb
http://www.leftfootforward.org/2011/08/higher-borrowing-than-under-labour-threatens-credibility-of-uk-plc/ Higher borrowing than under Labour threatens credibility of UK plc. | Left Foot Forward

[...] Left Foot Forward last month, I highlighted the risks on the budget deficit of low growth. It now looks like the poor growth we have had for [...]
http://www.leftfootforward.org/2011/09/oecd-prediction-rocks-osbornes-deficit-reduction-hopes/ OECD prediction rocks Osborne’s deficit reduction hopes | Left Foot Forward

[...] Hollinsgworth has shown on Left Foot Forward, if the prediction is accurate then Osborne will be unable to cut the deficit at [...]
http://www.leftfootforward.org/2011/09/look-left-11-09-11/ Look Left – World unites to remember the day time stood still | Left Foot Forward

[...] it will mean the UK economy will have grown only 0.9% this year; as a result, as Left Foot Forward showed in July, the chancellor will be unable to cut the deficit at [...]
http://www.leftfootforward.org/2011/09/we-need-to-invest-in-infrastructure-if-we-going-to-reduce-the-deficit/ We need to invest in infrastructure if there’s any hope of reducing the deficit | Left Foot Forward

[...] A downgrade in the output gap suggests a fall in expectation of aggregate output. It’s the latest sign of what we’ve been worried about since July: the public sector cuts collapsing aggregate demand which feeds into higher borrowing. [...]
http://twitter.com/isdancing/status/121591417347907586 Mabel Horrocks

If Cameron says you can't borrow your way out of debt, he should tell George Osborne: http://t.co/CTIKtMmd #cpc11 #con11
http://twitter.com/worgztheowl/status/121591559052476416 Mark Worgan

If Cameron says you can't borrow your way out of debt, he should tell George Osborne: http://t.co/CTIKtMmd #cpc11 #con11
http://twitter.com/silverbullit730/status/121591595035398144 Jamal Barry

If Cameron says you can't borrow your way out of debt, he should tell George Osborne: http://t.co/CTIKtMmd #cpc11 #con11
http://twitter.com/dd1958/status/121591597845581825 Denis donovan

If Cameron says you can't borrow your way out of debt, he should tell George Osborne: http://t.co/CTIKtMmd #cpc11 #con11
http://twitter.com/rattlecans/status/121592176491765762 Ma

If Cameron says you can't borrow your way out of debt, he should tell George Osborne: http://t.co/CTIKtMmd #cpc11 #con11
http://twitter.com/mcmlxxvi_ad/status/121592314127847425 .

If Cameron says you can't borrow your way out of debt, he should tell George Osborne: http://t.co/CTIKtMmd #cpc11 #con11
http://twitter.com/vbird76/status/121634552379736065 Sylvia Turner

If Cameron says you can't borrow your way out of debt, he should tell George Osborne: http://t.co/CTIKtMmd #cpc11 #con11
http://www.leftfootforward.org/2011/10/camerons-speech-churns-out-the-old-tory-myths/ Cameron’s speech churns out the old Tory myths | Left Foot Forward

[...] are being repeatedly downgraded, and so is the projected reduction in deficit reduction. As Cormac Hollingsworth wrote on Left Foot Forward in July: “The coalition’s spending plans are factored into the [...]
http://www.leftfootforward.org/2011/12/when-government-borrowing-fails-to-fall/ Osborne is perilously close to failing to cut borrowing at all | Left Foot Forward

[...] July this year we predicted that at some stage this year the government would have to concede because their gamble had failed. [...]
http://www.leftfootforward.org/2011/12/five-reasons-to-oppose-the-welfare-bill/ Five reasons to oppose the welfare bill | Left Foot Forward

[...] is a direct example of how the counter-productive attempt at rapid deficit reduction is being balanced on the backs of the poorest. There are many problems [...]
http://www.leftfootforward.org/2012/01/lord-mandelson-national-investment-bank-globalisation-ippr/ Mandelson weighs in behind National Investment Bank | Left Foot Forward

[...] The coalition could end up borrowing more than Labour – Cormac Hollingsworth, July 27th [...]