It turns out that the UK government has been borrowing less than we thought

As we look at the latest numbers for the UK fiscal situation we cannot avoid this thought for the post election situation which was expressed by Shirley Bassey some years ago.

Hey big spender,
Spend a little time with me
Wouldn’t you like to have fun, fun, fun
How’s about a few laughs, laughs
I could show you a good time
Let me show you a good time!

Yesterday produced an example of that on the tax front as Prime Minster Boris Johnson proposed cuts in National Insurance contributions in the same manner as the personal allowance for income tax was raised. This would start with a rise to £9500 in the National Insurance threshold and might go as high as £12.500 to align it with income tax. The initial cost would be around £3 billion a year.

Housing has also come to the front line with Labour promising to build a lot more homes.

In 2017, they promised 100,000 council or housing association homes a year. Now it’s 150,000 between them…..Labour’s £75bn plans will be paid for using half of its £150bn Social Transformation Fund – a pot it says it will use to “repair the social fabric” in the country, if they win a majority in 12 December’s general election. ( BBC)

On the other side of the coin there is less explicit spending from the Conservatives but a clear implicit burden for the taxpayer from these.

The party will promise to introduce a new mortgage with long-term fixed rates, and only needing a 5% deposit, to help renters buy their first homes.

And it will create a scheme where local first-time buyers will be able to get a 30% discount on new homes in their area.

State mortgages? Also a type of help to buy on steroids. So extra liabilities for taxpayers which should be a debit somewhere in the public finances.

The Liberal Democrats offer this.

On Wednesday, the Liberal Democrats launched their manifesto, promising to build 300,000 homes a year by 2024, including 100,000 social homes.

The problem with all of these is twofold. We seem to be building more houses now anyway so how many more do we need? The issue seems to be more of one of them being in the wrong place rather than a total shortage. Also we have had lots of schemes to build more houses which have been full of hot air including one which built none at all. Whoever gets in power there will be more spending in this area it seems.

The Liberal Democrats

Last time around their manifesto was not available but we see now that actually they plan to be relatively fiscally responsible.

A good government should responsibly manage the nation’s finances: taking advantage of opportunities to borrow to invest in key infrastructure while making sure that day-to-day spending does not exceed the amount of money raised in taxes…….Ensure overall national debt continues to decline as a share of national income.

The “day to day” bit looks a continuation of the swerves we see to look like you are being restrained when you are spending but the national debt plan does imply a brake. Compared to the plans of the Tories and Labour quite a brake actually.

Where things get confused is here, because we would under their plan to stay in the European Union just carry on so the “bonus” is what precisely?

Use the £50 billion Remain Bonus to invest in services and tackle inequality, giving a major boost to schools and combatting in-work poverty.

On the other hand they do move from fantasy to reality with their plan to raise the basic rate of income tax by 1 pence. That is I believe for improvements to education in theory although of course it just goes in the same pot. But at least it is reasonably clear.

How much are we taxed?

Here are the calculations of the Resolution Foundation.

Total revenue as a share of GDP has risen to its highest level since 1985-86 but remains very close to its post-war average of 37 per cent. Tax revenue excluding other receipts has hit its highest share of GDP since 1981-82.

Today’s Data

This should bring us back to reality although there are issues with the version of reality presented to us as regular readers will be aware. There is yet another example of that today and let me illustrate with something you might have been expecting.

Borrowing (public sector net borrowing excluding public sector banks, PSNB ex) in October 2019 was £11.2 billion, £2.3 billion more than in October 2018; this is the highest October borrowing for five years (since October 2014).

If we stay with the October figures then yet again the phrase “as expected” can be used.

Departmental expenditure on goods and services increased by £2.3 billion, compared with October 2018, including a £1.0 billion increase in expenditure on staff costs and a £1.0 billion increase in the purchase of goods and services.

That is consistent with what we have been seeing with a hint of spending ahead of the supposed Brexit date at the end of October. Indeed overall the spending was higher overall because we see that there was a cut.

Interest payments on the government’s outstanding debt decreased by £0.5 billion, compared with October 2018, largely resulting from movements in the Retail Prices Index (RPI), to which index-linked bonds are pegged.

But I am afraid if you look deeper there is a swerve as hinted at below.

Borrowing in the current financial year-to-date (April 2019 to October 2019) was £46.3 billion, £4.3 billion more than in the same period last year; this is the highest April-to-October borrowing for two years (since 2017), though April-to-October 2018 remains the lowest in such a period for 12 years (since 2007).

So much of the extra borrowing was October which made me thing hang on! We have been told for a while spending has been higher and last month the year so far was £5.9 billion higher.So we should be £8.2 billion higher now not £4.3 billion. The difference is found below.

PSNB ex in the current financial year-to-date (April to September 2019) has been revised down by £3.9 billion compared with figures presented in the previous bulletin (published as corrected on 29 October 2019) as a result of updated central government data.


 we find out that  the problems have been mostly with expenditure.

Over the same period, we have reduced our previous estimate of central government current expenditure by £2.5 billion. Reductions in previous estimates of the purchase of goods and services, social assistance and “other” current grants of £3.2 billion, £0.6 billion and £0.6 billion, respectively, were partially offset by a combined upward revision to previous estimates of staff costs and grants to local government of £1.4 billion and £0.5 billion.

Seeing as that is the expenditure which we are told has gone up this month the situation looks a bit of a mess.

Also we never seem to be able to quite shake off issues with the banks whatever subject we look at.

The previous estimate of interest and dividends receipts has been increased by £0.7 billion, largely because of a £0.8 billion misrecording of the Royal Bank of Scotland (RBS), paid in April 2019, being captured in cash receipts but not in central government net borrowing. Further, updated bank levy data increased tax receipt estimates by £0.2 billion.


So there you have it a clear case of value from my style of work as in actually looking at the numbers and data. You will find loads of reports in the media that we have spent more whereas overall we have spent less than we thought! Or if you prefer today’s revisions mean that the UK’s fiscal stimulus has so far been smaller than we have been told. In a way that about sum’s up the years I have been looking at this area.

Looking ahead we do seem set to spend more whoever forms the next government and in some cases much more. We can borrow more presently at cheap rates ( 1.21% for the 50 year Gilt yield) but as to taxation I intend to wait and see as in recent times governments have not found it easy to actually raise it. The last big move I can recall was the post crash rise in Value Added Tax and some taxes have the issue illustrated by Ireland and the way big companies use it.




17 thoughts on “It turns out that the UK government has been borrowing less than we thought

  1. The first thing that drew my attention on both the Conservative and Labour manifesto pledges was the Housing promises.

    Labour want to build more council houses and there is a lack of skill shortages, I know that as I used to be connected in the building industry. I could take years to get the skill shortage up to a proper base. The problem with council housing is they tend to get neglected then they get given away cheaper than it costs to rebuild, its the tax payer that suffers the burden in the end.

    As for the conservatives scheme of a 30% discount well you can imagine how builders will just love that, they will overprice housing with the 30% carrot knowing that the prospective buyer can get a low mortgage interest rate of circa 1.45% in some cases.

    So the builders will be raking in massive profits, house prices will carry on ever upwards!

    In the short term that is all very well but the OECD has warned today of reduced growth and possibly stagnation:

    Then what?

    The house of cards may well collapse!

    This is not a prediction as I only have a simplistic understanding of economics but the figures do not work out, 2+5+8 does not make 9 !

    • An error in my post on Labour policies, they are set to abolish “Right To Buy” but also aim to buy back council houses purchased by Landlords under the Right To Buy scheme.

      Highway robbery ?
      Or just taking back houses given away on the cheap?

      A Mail article the other day suggested 1 in 3 landlords expected to sell some of their stock in any event due to tax changes, and repossessions increasing in the sector the last year. The government had already stopped benefits going straight to landlords, which had the result of tenants getting into arrears, they were presumably spending their housing benefit on other things.

    • “I could take years to get the skill shortage up to a proper base”

      10 to 15 years according to an interview I heard on the way home from work.

  2. It is so easy to look at the housing problem on the basis of this is how it is, how can we tinker with the existing system to make it better? How much better to remind ourselves that we got here through the interference of government in this market starting with the 1916 rent controls.

    • PeterH

      On rent controls Labour are to bring those back, which is another reason there will be a flurry to sell buy to let if they get back in power.

      To pick up on what Shaun also said on the house builders already building enough homes, there are lots of empty spaces above shops apart from more shops closing down and there shouldn’t be a shortage of property in many places of the country if empty space was utilised properly.

      The trouble is both MP’s and councillors aren’t proactive enough in dealing with these issues.

      Councils can repossess property if its left in disrepair but are reluctant to do so, probably part due to the Human Rights Act on protection of property and possessions.

  3. There is one new upcoming tax “increase” that none of the major parties have mentioned putting a stop to. The IR35 changes next tax year, and their retrospective potential, should cause a lot more tax to be paid by 10s of thousands of highly paid contractors in the Finance. Telecoms and Pharamaceutical Industries. It will have a number of subtle effects on what can be written off against tax but the major factor is the employer and employee NI that has to be paid. This could reduce take home pay by around 30% with this amount going to HMRC.

    • “10s of thousands of highly paid contractors in the Finance. Telecoms and Pharamaceutical Industries”

      If labour really does want to give every one free high speed internet access they may have to pay over the odds for those telecom’s engineers.

  4. Commenting on the other issues on todays BLOG

    if Labour gets in tax for high earners will go up but the highest tax payers and well clued up about shifting their money abroad and will continue to do so, all that said I don’t think on balance it will be good for the economy.

    Corbyn is taking us back years, nationalisation and all the other schemes he is proposing will increase public debt which in turn will worry the market interest rates may well go up and cause a significant financial crisis in the UK. That is the worst case scenario.

    Labour- “Keep the Red Flag Flying” yes and this country will be in the Red BIG time!

    There isn’t much point talking about what they propose they aren’t going to get enough seats in Parliament! They have nil chance of winning the election!

    It will be black Friday soon and if Labour gets in it will be RED screens when the market opens on the day after the results, that is one prediction I am prepared to make. The markets are already jittery now on proposed nationalisation of utility companies and additional tax levies on oil companies.

  5. I wish that all of these spending plans would be examined by economists to show the true cost to the electorate of their pledges. Some statements, like Jo Swinson magic £50 billion, are just fantasy. If one assumes that the £50 bil will come from the tax returns of companies earning extra income from sales then a fantastic growth in sales would have to happen. Average operating profit is around 15-18%. Corporate tax is 19% so if you gross that back up to turnover then the growth in sales would have to be more than the total business we now do with the EU! Do they ever sit down with an accountant and work out the implications of what they spout?

  6. Hello Shaun,

    re : ” the UK’s fiscal stimulus has so far been smaller than we have been told”

    indeed but the promises of our lawmakers will mean the cry of

    “Cry Havoc, and let slip the printing presses of war! ”

    still if we stay in the EU we’ll have to contend with Target 2 restraints?


    • Forbin, that’s interesting. I had assumed Target 2 only applied to Euro countries but have I misunderstood? We’d also be under the Stability & Growth Pact although that doesn’t seem to restrain the French . . .

  7. Hi Shaun,

    Thanks for the enlightening blog, I am a fan. Could you please cover the “Reversal Rates” that is gaining a bit of traction lately? Would the central banks at some point decide they can’t stimulate inflation by further lowering rates, and start to increase the rates? I observe that when the Turkish central bank started decreasing the rate in big chunks, the inflation has dropped substantially (which is contrary to popular understanding). TBH, I am not sure if it is the other way round (ie, inflation started to come down first and they are dropping interest rate to match that) – appreciate your input in this matter as well.

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