Public borrowing is now running at the same level as in 2009. That’s the evidence from a Left Foot Forward close examination of the borrowing data of the first five months of this financial year.
The reason the numbers reported by the media don’t look that bad is because the government has benefitted from some accounting quirks booked in April that have artificially lowered the reported borrowing numbers.
Once they’re removed it’s clear underlying public borrowing in the economy’s second dip is now back to the worst borrowing of the economy’s first dip.
The accounting quirks are the transfer of the Royal Mail Pension Plan to a new unfunded pension plan and a smaller benefit from the profits. The profits are accounted as £2.1 billion less borrowing by the ONS, but the transfer of the Royal Mail Pension Plan is much bigger, £28 billion less borrowing.
Neither of these represents sustainable reductions in public borrowing, and it is the direction of the underlying figures that is important not only for “market credibility” but also for lower borrowing next year. Stripping out these quirks, borrowing so far in 2012 is within 1.5% of the year to date of 2009 borrowing, the record-breaking year for borrowing.
The ONS reports of the transfer of Royal Mail in April this year:
“Under National Accounts rules, the pension liabilities of unfunded pension plans, like those for the Civil Service, are contingent liabilities and are therefore not recorded as liabilities in the National Accounts or Public Sector Finances.
“However, the transfer of the assets provides the government finances with a one off boost in the short term, though government expenditure rises over the longer term as it pays out the pensions to retired Royal Mail workers.”
For a government that claims it’s worried about long-term public sector pension liabilities, this smacks of utter cynicism. It has taken a £10 billion public pension liability off the Royal Mail Pension Scheme, asset stripped by £28 billion to reduce borrowing this year by a politically helpful amount, leaving taxpayers with a new, bigger long term liability of £38 billion.
For a government that claims Labour was irresponsible about its financial interventions, no wonder it is silent about the £2.1 billion its booked from the closure of the SLS scheme. It was very vocal when it claimed they were forced to book Labour’s loss of £650 million on the Northern Rock intervention; it has so far been silent on this year’s reduction of borrowing by £2.1 billion. So far this government has booked a profit on the previous government’s interventions.
For a government that has as its primary aim the reduction of the deficit, underlying borrowing is not only rising, but running at the record levels of 2009. This underlying weakness in borrowing is somewhat factored into the City, which already expects borrowing to be 6.0% of GDP in 2014-15, thus the coalition’s engineered slowdown means they fail to not even halve the deficit.
If the underlying borrowing remains this poor, those City forecasts will have to be revised; at what cost to the credibility of UK plc, we’re about to find out.