Figures released a week ago show that the US government deficit is back below 3% of GDP, an amazing turnaround that went without much celebration. That is down to less than a third of the levels it reached during the worst of the recession.
In comparison, Britain’s deficit-cutting has been awful: At 5.7% of GDP in the most recent fiscal year, the government has not even reduced borrowing by half. When the Coalition came into office, they expected to eliminate the deficit by 2015.
Just a few weeks ago, British Chancellor George Osborne said that the UK is the “most deficit reducing of any major advanced economy on earth“. It wasn’t true at the time, but sounds even more ludicrous today.
Borrowing disappointments have been one of the only constant and reliable things in the last few years in British politics. Crises come and go, but the government has almost constantly missed its own deficit targets.
So far, the UK’s public sector has borrowed £58 billion ($US94 billion) in the financial year between April and September. Despite the promising economic recovery, that is actually £5.4 billion ($US8.7 billion) more than it did during the same period last year.
Even though Britain is now growing at an unexpectedly decent pace, public borrowing figures are still failing to see any significant improvement. Based on the first six months of this financial year, the deficit will actually be higher, not lower, than last year’s.
Samuel Tombs at Capital Economics spells out the Treasury’s problems in a note:
The poor performance relative to last year has largely reflected what should be temporary weakness in income tax receipts, due to lower than expected growth in average earnings… Nonetheless, borrowing would have to be a whopping 37% lower than last year in the remaining six months of the fiscal year for the annual total to match the OBR’s forecast. Accordingly, the Chancellor will be forced to acknowledge in December’s Autumn Statement that the fiscal consolidation is not going to plan, limiting his scope to announce pre-election sweeteners.
Britain was already set for a pretty dismal general election next year, but with an even more dismal outlook for the public finances, it looks like there’ll be even less on offer from the major parties.