In the decade or so I’ve been covering economics for the UK media I cannot recall a public finance release quite as confusing and complicated as the one spewed out by the Office for National Statistics this morning.
At first glance, the figures looked like good news for the Treasury: a bigger-than-expected surplus in the public finances in January.
Economists had expected the government to “pay back” £8.7bn during the month (January is one of those months with a big influx of tax revenue); in the event, its surplus was £11.4bn.
Moreover, the borrowing total for the first nine months of the fiscal year was also a little better than previously thought: borrowing for that period was revised down by £1.2bn.
Hurrah, you might reasonably say. And, better still, the total amount borrowed so far this fiscal year is, at £65.8bn, a whopping £26.5bn lower than at the same point last year.
But delve a little deeper and the picture looks rather less encouraging. Earlier on this year the Government integrated the £28bn Royal Mail pension fund into the Treasury’s accounts, which you ought to ignore if you intend to make any meaningful comparison. Exclude that from the picture (and, while we’re at it, the effect of some dribs and drabs of cash associated with the nationalisation of Northern Rock and Bradford & Bingley), and public sector borrowing so far this year is, in fact, £1.5bn higher than last year, at £93.8bn.
However, I’m afraid you’re still going to have to delve even deeper for a genuinely comparable sense of how healthy or otherwise the public finances are. For some £3.8bn of this month’s surplus was in fact an influx of cash from the Bank of England, as it started to transfer the profits from its quantitative easing programme across to the Government.
Ignore that and borrowing is running £5.3bn higher than this time last year, at £97.6bn. It’s the figure on this basis which we have tried to use in most of our coverage: this figure which we should compare with the Office for Budget Responsibility underlying borrowing forecast of £120.3bn this year. It’s this particular measure which the Chancellor made rather a lot of noise about at the Autumn Statement, when he trumpeted the fact that the Treasury would borrow less this year than last year’s £121.4bn.
Oh, but the complication doesn’t end there: there’s also the distortionary impact of the money coming in from the 4G spectrum auction. This worked out as £2.34bn rather than the £3.5bn the OBR had forecast. Which is another reason most economists now think the Chancellor will, on that underlying measure, end up borrowing more this year than last.
Now, in a totally comparable set of accounts you might want to strip out the 4G auction proceeds entirely but, in all honesty, most economists have given up by this stage.
And there is one final level of complication: those QE profits coming over from the Bank of England are considerably lower this year than the OBR had expected – £6.4bn rather than £11.5bn this year. Why? Because the Office for National Statistics has looked into the small print and discovered that “national accounts guidance essentially puts a limit on how much cash can be transferred from a central bank to a government in any given period”.
So, to sum up, here’s what’s happened: the ONS has imposed an apparently arbitrary limit complicating a complicated transfer of cash which will significantly change the complexion of the public finances this year, which were, anyway, barely comparable with last year’s figures.
There is a serious point here. On the basis of its deficit and debt levels, Britain is likely to lose its AAA credit rating in the coming months. That will depend not only on the debt trajectory, but also on the extent to which the agencies believe the Government is trying to sort the problem out. Public finance releases of the level of complexity we’ve seen today give the impression that the Government is doing everything it can to muddy the waters, instead of confronting the problem.
When George Osborne became Chancellor he promised to make the taxation system and public finances simpler, straightforward and smaller than ever before. On the basis of today’s release he has done precisely the opposite.