Anyone for more tax cuts in the spring budget? You might as well hand out free beer. For many Conservatives, tax cuts provide the last tiny chink of light before the door closes on their electoral prospects for good. This month’s government borrowing figures might just provide some encouragement, too. Net borrowing in November was £0.9 billion lower than it was in November 2022. The great bulge in the deficit which came with Covid seems finally to be subsiding. With inflation falling sharply, too, the outlook for the public finances begins to look a little brighter. The UK government has an unusually large slice of its debt in index-linked debt, meaning that a drop in inflation will instantly relieve some of the burden.
But here lies the danger. With the debt burden easing slightly the issue of the public deficit could very easily fall off the political radar, with the effect that neither this government nor one succeeding it will be bothered to try to balance the books. Next time we have a crisis, like a recession, pandemic or an inflationary surge, we will be in an even worse situation than we are now.
No, the fact that the government needed to borrow £900 million less this November than last does not give the Chancellor a ‘windfall’, either to be spent or to be used to justify tax cuts. So long as we have any kind of deficit at all it means that the government is accumulating debt. And we have now had deficits for 22 consecutive years, since Gordon Brown last balanced the books in 2000/01. The result is net debt of £2.67 trillion, equivalent to 97.5 per cent of GDP. That is 1.8 per cent higher than in November 2022 – which just shows, while the month-on-month deficit can be going down cumulative debt will still be going up – even relative to GDP.
Neither should anyone celebrate November’s figures in isolation. In the first nine months of this financial year the government borrowed £116.4 billion, which was £24.4 billion higher than last year. The government is currently running the same scale of deficit now than Gordon Brown was just after the 2008/09 financial crisis. According to the Office for Budget Responsibility the government will spend £116 billion this financial year simply paying interest on its debt – about two thirds of what it spends on the NHS.
The difference between 2010 and now is the political mood. Then, the deficit was centre stage. The promise to get the public finances back into order was instrumental in the 2010 general election campaign and formed the focus of the new government. A huge programme of spending cuts and tax rises was announced – with rather more of the former than the latter.
But who is talking about cutting public spending now? The opposition’s jibe about ‘austerity’ – by which it meant a government trying to live within its means – seems to have rattled the insides of the Tory party. Remarkably, spending cuts are still not on the agenda even after bond markets delivered their shot across the bows in response to Kwasi Kwarteng’s mini budget in September 2022.
Governments end up with deficits for a very simple reason: they find it politically easier to spend money than they do to raise revenue. But what is politically expedient is financially ruinous. The lack of any impetus from either party to balance the books does not bode well for the future.
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