Britain entered the economic shock from Donald Trump's trade wars with government borrowing having overshot official forecasts by almost £15bn in the most recent financial year.
Adding to the pressure on the chancellor, Rachel Reeves, the Office for National Statistics said borrowing in the financial year ending in March was £151.9bn, more than £20bn higher than in the previous financial year.
After a larger than anticipated rise in borrowing in March, the figure was £14.6bn more than the Office for Budget Responsibility (OBR) had predicted less than a month ago in forecasts published alongside the chancellor's spring statement.
So what?
The margin for error is small: this figure is a little over one per cent in proportion to spending.
And what does that supposed borrowing figure mean? I suggest four things.
First, the government has injected more money into our economy, which it needs to continue to function.
Second, as a result, it has undoubtedly boosted GDP. This is consistent in that case with government policy.
Third, the government has increased private wealth as a result of running this deficit; that is why funds are available to save in new government bonds.
Fourth, what then is the problem? A small contribution towards the cost of failing public services has been made. The economy is stronger than it might have otherwise been. And we know this to be true because savings have risen.
Why is anyone making a fuss this morning?
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It does rather undo several things my MP/Junior minister wrote to me last week about stabilty, and fiscal rules. But that’s her problem, not yours.
Hello Richard.
‘Adding to the pressure on the chancellor, Rachel Reeves’
The pressure to scrap her fiscal rules and redirect the economy towards reducing inequality, ending poverty and generally improving public quality of life?
No, thought not.
The OBR is a completely waste of time for the country but a useful tool to help the neoliberal political establishment maintain its (hopefully fading) relevance.
This overshoot in borrowing reflects strategic fiscal intervention, not mismanagement. In a fragile economic climate, targeted deficit spending can stimulate growth, bolster private savings, and mitigate under investment in public services—precisely what these figures demonstrate. The real concern isn’t the borrowing itself, but whether these funds are deployed productively to enhance long-term resilience. Critics conflating necessity with recklessness miss the broader macroeconomic imperative.
The fuss is generated by a simple, hateful conceit.
Pubic = Bad
Private = Good.
Think you missed a B there, matey.
An ‘L’ – I missed an ‘L’.
But I know what I meant.
Public poor, private rich. That seems to be the desired result of neoliberalism. Not what it says it will do, but what it actually does, that’s it’s intent. The rich want their government back, and can’t have it helping the common folk.
In essence
I am curious about how the government can “overshoot” on borrowing, as if it was something unanticipated or accidental.
From what I have learnt here and elsewhere, the majority of government “borrowing” is from the new issue of bonds (gilts). Surely the amount of bonds offered to the markets is planned in advance, not accidental.
It is true that other “borrowing” isn’t predetermined in the same way, for example the number of Premium Bonds bought that month, or the amount of cash withdrawn. But presumably they are a minority of government “borrowing” and neither seems very likely to vary wildly from year to year.
You often point out that government expenditure is accomplished by electronic creation of money in an account, unrelated to tax receipts or other government income, so the increased “borrowing” isn’t simply an accounting consequence of more bills needing paying by the government.
The only thing I can think of is that the big institutional buyers of government bonds are keener to invest in the UK, and bid up the price of bonds slightly. That is feasible right now given the decreasing confidence in the US economy under an erratic President. But that doesn’t seem quite right either, even if the UK government took in a bit more money for its bond issues its liability (“debt”) would remain exactly the same at the face value of those bonds.
So how did this happen as an “overshoot” i.e. unplanned?
The Debt Management Office reacts daily with T Bills that then result in longer term issues. It also holds stocks of bonds to sell into the market as required – many billions of them. In other words, unplanned increases like this can always be mamaged.
How have savings risen? Investors must have sold other assets (or reduced their cash savings) to buy these bonds, so the net impact is zero?
There is new govermment money in the economy – that is what the deficit represents – money spent not reclained by tax. That is where the source of the savings comes from. Savers end the multiplier effect. See chapter 16 of the Taxing Wealth Report 2024.
Well best they slash interest rates pdq! House building and home improvement, has taken a nosedive!
I would suggest, I’m at the lower end of home improvement and not house building . But I’m also witnessing, out of work tradesman, suppliers without custom and ground workers/ bricklayers out of work.
It starts at the bottom!
This needs government intervention! The free market ideology has had its day!
Yes let’s look at the green agenda,,, let’s stop looking for, generic aesthetic wash in consumption.
As a government, we should be investing in the future .
Think we should rightly start with energy costs and its exploitation.
Something you suggested.
Both commercial and domestic!
As an engineer by trade, I learnt to start at the beginning.
Would this have been Hayek and Friedman’s choice? I don’t think so!
Labour hoisted by its own petard?
If you spend your entire tenure talking about household economics and the need to balance the books, this news makes you look pretty damned incompetent!
doing a google search i see the uk government owns just over 310 tonnes of gold valued at over 100 billion. seeing rachel reeves is unwilling to raise substantial funds from increasing wealth taxes and wants to keep to her fiscal rules why doesn’t she instruct the B of E to sell out gold especially as the price is at record levels.
as the government has the ability to create new money do we actually need to hold any reserves?
It’s a good qeustion
But it is also Friday night
I will think about a video on it