The FT revealed on Tuesday that Darling would have to issue more than £200bn of government bonds this financial year, far above market expectations.
“With public borrowing set to soar to £170bn-£180bn, the chancellor will have to tap the market for an issuance of gilts that will be well over £50bn higher than the Debt Management Office estimated last month,” we wrote.
By Elaine Moore, FT Money
The extension of pension credits in November mean pensioners have just seven months to decide what they’ll spend their extra £4 a week on. The government has sought to offset its tax cuts for the rich with tax credits for the less well off, some more impressive than others.
Counting the same number twice is very New Labour.
So far I’ve spotted one example already in today’s Budget.
1] Chancellor to set up new £750m investment fund to focus on emerging technologies and biotechnology to promote research and development. (Which, incidentally, is said to be rather a long way off)
2] £405m in new funding to encourage low-carbon manufacturing.
It turns out that £250m of the latter is coming out of the former, which does not yet exist. Somewhat typical.
Lex: UK public finances
Philip Stephens: the final full stop to the era of good times
Nicholas Timmins: biggest spending squeeze since WW2
Sharlene Goff: tax changes hit highest earners hardest
If you want to take away two main points from today’s Budget they are these:
1] Borrowing is about to go through the roof. The figure for public sector net borrowing (PSNB) was just 2.4 per cent in 2007/8. It will have jumped to a punitive 12.4 per cent this year, before easing back to 11.9 per cent, 9.1 per cent, 7.2 per cent and (by 2013-14) 5. 5 per cent.
For this to take place, however, you have to believe some pretty optimistic forecasts from the chancellor.
You can see how much of a squeeze the government is in by looking at the figures for its tax receipts.
Projections for 2009/10 are:
income tax £140bn (against an estimate of £152bn in 08/09)
VAT £63.7bn (£78.4bn)
Capital gains tax £2.2bn (£7.8bn)
Stamp duties £5bn (£8bn)
Inheritance tax £2.3bn (£2.9bn)
Petroleum revenue tax £1.1bn (£2.6bn)
As a result, the total take by HMRC is expected to be £394bn this year, against an estimate of £427bn last year and £451bn the previous year. Ouch.
Total receipts, which include business rates, council tax and vehicle excise duties, will be about £496bn against £548bn in 2007-8.
As predicted in this morning’s FT, the big news for renewables is a change in the subsidy scheme to favour offshore wind, with an extra £525m payment. The cunning thing about this is that the money does not come from the greatly over-stretched public finances, but from the Renewables Obligation, which is paid for through electricity bills. So consumers will blame their suppliers for the extra cost, not the government.
This is my take on the Budget. Borrowing, borrowing, and more borrowing.
With public sector net debt scheduled to double to 79 per cent of national income, when the treasury said until last November that 40 per cent was the absolute maximum, the public finances are in a deep hole.
To plug the gap, Mr Darling has used a mix of tactics: swinging public spending restraint, optimistic economic growth forecasts, political tax increases on the rich that do not raise a lot of money and the healing power of time.
It doesn’t look as though borrowing will come back to a prudent level until late in the next decade. Economic forecasts by then are nonsense, but it is clear that the next decade will be a very difficult time for government and public services. And all the while UK taxpayers will be dependent on the whims of the government bond market.
If gilts sales go badly, what seems a difficult decade ahead today will be a genuine crisis tomorrow.
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