Wednesday, 25 May 2011

Memo to Treasury: there are two lines on a debt graph

The above graph should make as clear as possible just why the Government's attempts to get Britain's deficit down are proving so difficult. There are two lines, not one - not only government spending, but revenue too. The second is just as important as the first. That's the key to why the Government's deficit reduction plans might not work - as some of us have been saying until we're blue in the face.

Today there's some proof. The borrowing numbers are in for the first month of the new financial year (April), and they are very bad indeed - the worst on record, in fact.

It's another indication of just how risky this rapid cuts-and-contraction package really is. If tax receipts lag with a slowing or slugging economy, the deficit won't go down as quickly as the Treasury thinks. No growth? No falls in state borrowing - and a huge amount of damage done to the credibility of official forecasting and policy.

All this while it's clear that the fiscal year 2010/11 was not as bad as even official figures told us at the time - let alone the nonsense spun by doomsters on the farcical Rally Against Debt. There is just no way that the UK was heading for any sort of sovereign debt or government borrowing crisis. Many forecasters thought that borrowing might peak at £180 back in 2008 and 2009, in the real trough of the financial collapse. In fact, the figure was £141bn - still nasty, but not as horrific as we thought we'd get. In fact, the number might now be coming down a bit faster if it were not for Chancellor Osborne's dire warnings and blood-curdling political warnings against the danger of 'total collapse' - and if we'd had a bit more growth.

So all that economic and social pain? It might just count for nothing in the end.

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For various tedious and not-so-tedious reasons, this'll be the last posting for May. But this has easily been PPP's best month for traffic and visits, so I thought I'd thank you, loyal reader, for sticking with my rantings... Keep reading! And see you in June.

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