UK government borrowing- is it increasing or decreasing?
There is much confusion about whether the UK government is going to borrow less money this year than it did last year.
In other words, will the deficit be lower in the financial year 2012/13 than it was in 2011/12?
This is a crucial political question.
The chancellor George Osbourne had to reveal the bad news that it would take longer than planned to start reducing the overall debt (that’s all the deficits added together) than he had hoped.
But he gave great fanfare to the news that the independent Office for Budget Responsibility (OBR) had predicted that this year’s deficit would be below last year’s.
“There are those who have been saying that the deficit was going up this year,” he told the House of Commons. “But any way you present these figures, that is not what the OBR forecasts show today. They say that the deficit is coming down.”
The OBR does indeed predict a fall in the deficit, from £126 billion in 2011/12 to £108 billion in 2012/13.
But the judgments behind the figures are complicated as the deficit figure for this year is flattered by the £3.5 billion sale of licences to run 4G mobile phone services.
To make matters even more complicated, the OBR has had to decide how to treat a large pot of money held by the Bank of England as a result of its quantitative easing programme, under which it has created money and mainly used it to buy UK government bonds.
The government has been paying interest to the Bank of England for those loans, which has accumulated into a big pot of cash.
The Treasury has decided to transfer that money to itself, which has knocked £11.5 billion off the deficit this year and will continue to reduce it for several years to come.
On the other side, once the Bank of England begins unwinding the quantitative easing programme, the deficit will rise again, so one could see the transfer as a temporary effect.
Indeed, the Office for National Statistics, which calculates the national accounts, will not decide how it is going to treat these money transfers until next month, and the OBR points out that its forecasts could be affected by its decision.
Finally, the assets of Bradford and Bingley and Northern Rock Asset Management have been reclassified as part of central government, which has knocked another £400 million off the deficit.
But excluding the effects of the Bank of England money gives a figure of £121.4 billion in 2011/12 and a forecast of £119.9 billion for 2102/13- which demonstrates the importance of the inclusion of the assumed receipts from next year’s 4G spectrum auction, without which the deficit would indeed have risen.
December 13, 2012
Tags: borrowing, Credit Crunch, Debt Crisis, debt management plans, Loan calculator, UK loans rates Posted in: Bank of England, Borrowing Costs, Credit Crunch, Debt Crisis, Debt Management, Loans Calculators, UK Loans Rates, Uncategorized
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