What’s really going on with the public finances
When he was Shadow Chancellor, one of George Osborne’s favourite criticisms of the then Chancellor Gordon Brown was that under him the tax system had become so complex that Tolley’s Tax Handbook, the Bible of tax measures, had doubled in length to over 11,500 pages. In an Osborne regime, the tax system would be simpler, the deficits would be lower and the public finances would soon be in better health – or so went the claim.
I was reminded of that this morning when the latest public finance bulletin from the Office for National Statistics thwacked onto my desk. The bulletin seemed, well, considerably thicker than I was used to. So I looked back at the public finance bulletins for the same month in previous years (the March release is significant because it tots up the total amount of borrowing for the entire fiscal year, which ends in April) and here’s what I found:
That’s right: the length of the public finance statistical bulletin has more than doubled under George Osborne from a relatively slim 25 pages in March 2010 to this month’s record length of 54 pages.
It might be tempting to conclude that perhaps the font size has changed, or that the ONS has included lots of whizzy graphs to thicken out the document. The reality is that the public finances have become staggeringly complicated under this Government. I’ll give you another example: this time last year it took the Office for National Statistics three bullet points to explain the key news on the public finances. Today it took them ten bullet points.
Why? Well, in part it’s because there has been rather a lot of jiggery-pokery going on behind the scenes. Various items have been added and subtracted from the numbers with the net effect that it’s increasingly difficult to discern precisely what the numbers mean.
In theory, public finance statistics ought to be pretty simple: they are, after all, merely a ledger of how much the Government has raised in taxes, how much it has spent and how much it has borrowed in a given year.
However, these days we have a grand total of six (count ‘em) different headline measures of the deficit.
- There’s public sector net borrowing (PSNB) – the traditional measure of the deficit. On this measure, the deficit is down this past financial year (12/13) by £19.1bn (or 20.5%) to £74.2bn.
- Strip out the effects of financial interventions (eg the semi-nationalisation of banks like RBS and HBOS) and the deficit was £86.2bn in 2012/13 – a higher number, yes, but down by 28.7% on the previous year. This is PSNBx.
- Strip out the impact of the Royal Mail Pension Plan, which has been added to the Government’s books, and the deficit was £114.2bn – down by a rather less flattering 5.6% compared with ‘11/12.
- If, on top of this, you then strip out the effect of the extra money funnelled into the public finances from the Bank of England’s Asset Purchase Facility (eg profits from quantitative easing) the deficit last year was £120.6bn, down a mere 0.3% from last year.
- It doesn’t end there, though. The Office for Budget Responsibility has also calculated a variety of the deficit which, on top of all of the above excludes the influx of profits from the Special Liquidity Scheme. On this measure, the deficit was actually £2bn higher in 2012/13 than the previous year.
- And if you exclude the impact of the reclassification of Northern Rock Asset Management and Bradford & Bingley (but exclude the SLS impact – do keep up) the deficit was, again, higher than last year, this time by £400m.*
Now, according to Treasury sources (who have spent the morning insisting to me that today’s public finance figures are “hardly very complicated”), the only figures from above to pay any attention are 2) PSNBx and 4) PSNBx excluding the Royal Mail Pension Fund and QE profits. On both of these measures, the deficit has fallen, although in the case of the underlying measure (4) it’s only by a few hundred million pounds, which in the realms of public finance numbers is essentially a rounding error.
One can draw two conclusions from today’s figures. First, Government borrowing is more or less flat. Or, to quote the ONS’s comment on that underlying measure of borrowing, the deficit this year was “similar in level to last year’s borrowing”. Trying to claim either that borrowing is falling or rising is disingenuous – it’s splitting hairs.
Second, the numbers have become so densely complicated that they risk obfuscating what is really going on. Whether this is by accident or design is a moot point: complexity started to creep in under Alistair Darling when the banks were first nationalised, but it has ratcheted up since then. And the more complex the numbers get, the more skeptical people will be when the Chancellor uses them to make political hay.
The fact remains that whether the deficit is a touch up or a touch down, it’s nonetheless massive. If you take even the distorted PSNBx measure (number 2. above) it is, at 5.57% of Britain’s gross domestic product, double the level it was even at the height of the Brown borrowing period. It’s still the highest since the early 1990s.
Back at the turn of the millennium Britain’s total national debt was equivalent to around 30% of GDP (see chart above). Today it’s up at 75% of GDP. That’s the highest level since Britain was recovering from the trauma of World War Two. This, in the end, is why Moody’s and Fitch have both concluded that Britain does not deserve a AAA rating, and why there remains consternation about the future plight of the UK economy.
* Long as this list seems, I’ve actually spared you some other measures of borrowing, such as the net cash requirement, which measures how much the Government is actually having to raise on the markets to finance that borrowing through bond auctions.