June 20, 2008 | posted by Michael Baxter in Taxation, UK economy |

Remember a time when Gordon Brown used to talk about prudence?   John Lennon once sang: “Dear Prudence, won’t you come out to play.”  Well, GB did, and now we are paying the price.

The latest figures in public borrowing were out yesterday.  No longer is it Dear Prudence, instead, we should say ’oh dear.’

Here are the salient points: “The public sector current budget was in deficit by £9.1 billion; up by £1.5 billion compared with May 2007. Public sector net borrowing was £11.0 billion; up by £2.4 billion compared with May 2007.

“The public sector net cash requirement was £11.0 billion, £4.7 billion higher than in May 2007. At the end of May 2008 public sector net debt was £539.2 billion (equivalent to 37.2 per cent of GDP). This compares to £503.5 billion (36.5 per cent) as at the end of May 2007.”

So, public finances are getting worse in 2008.  No surprise there.  It is just that GB long insisted they would be better this year.  ‘It’s not my fault,’ you can imagine him saying, ‘it’s down to external circumstances.’

Gemma Tetlow, a senior research economist at the IFS said: “The Government has had to borrow 50 per cent more during the first two months of the financial year than in the same period last year to meet the gap between what it spends and raises in tax revenue. But Alistair Darling’s Budget prediction was that borrowing in 2008–09 as a whole would be higher than last year. VAT and corporation tax revenues are growing less strongly than Mr Darling predicted for the year as a whole at Budget time, although we are much too early in the financial year to be confident that this pattern will persist.

“Recent sharp increases in the oil price will also have several effects on the public finances. The latest independent forecasts for the oil price suggest that North Sea oil revenues could be boosted by around £5½ billon in 2008–09, compared to the Treasury’s predictions at Budget time, falling to about £3½ billion in 2009–10. But other revenues will be depressed by the higher than expected oil price, for example because higher fuel costs encourage people to buy less road fuel and may also reduce profits outside the oil sector. In addition to this indirect effect, the Chancellor has hinted that he may abandon the 2p rise in fuel duties scheduled for 1st October if the oil price remains high. This would cost £550 million this year and £1.1 billion a year thereafter. Taking all these factors together, it is far from clear that there will be a net gain to the public finances from the higher oil price.”