So far, the U.K. hasn’t made much of a dent on its budget deficit, in spite of all its efforts. U.K. Chancellor of the Exchequer George Osborne (not to be confused with Ozzy), the man in charge of the country’s public finances, must’ve felt shell-shocked to see that the public sector actually borrowed MORE in June 2011 than it did a year ago.
According to the Office for National Statistics, public sector net borrowing hit 14 billion GBP last month, up from 13.6 billion GBP in June 2010. It also noted that the public sector has borrowed a total of 39.2 billion GBP since the start of the fiscal year in April, down by just 400 million GBP from the same period last year.
Of course, numbers like these are exactly what you would HATE to see from a country that’s supposed to be cutting back on spending and borrowing. But really, what choice did the U.K. have but to borrow?
Income tax receipts dropped 2% and stood at 10 billion GBP in June, while government spending rose 5.1%. When income tax receipts, one of the country’s main sources of revenue, are lagging behind, and expenditures are on the rise, you’ve got to find a way to bridge the gap. And the fastest way to do that is to borrow, borrow, borrow.
But to be fair to Chancellor Osborne, and also so we get a good comparison between the performance of June 2011 and June 2010, it’s important for us to strike out any unique, big ticket items. For instance, June 2010 had the benefit of the bankers’ bonus tax, which pumped up government funds by 3.5 billion GBP.
The Chancellor ain’t using this as an excuse to slack off his austerity plans though. No sir! He said that he may cut back on business taxes but his goal of cutting the deficit by 0.5% each year until 2015 is still in play. Heck, not even the measly uptick in the GDP report changed his mind!
The Q2 2011 GDP stats showed that the economy grew at a slower pace at 0.2% compared to the 0.5% rate of expansion that we saw in January to March. On an annualized basis, the economy grew at its slowest pace since Q1 2010 at a rate of 0.7%.
This has gotten a few worrywarts thinking that further belt-tightening could continue to bog down growth. Remember that government spending is positively-related to GDP.
Then again, the government has only just begun its plans to reel in the country’s deficit that stood at around 10% of GDP in May 2010. Perhaps the U.K. might only be off to a bad start and maybe the economy could start hustlin’ soon. Well, that’s certainly looking on the bright side.
The Chancellor and his chaps have received a lot of flak about the austerity measures being unsustainable for economic growth. But we know oh so well what the consequences are when governments don’t act on straightening up their balance sheets. As my homeboys from Incubus would put it, “if not now, when?”
Who knows, if George Osborne decides to back out of his plans, the U.K. may just end up like the U.S. and the euro zone.