Today the UK Chancellor, Phillip Hammond, is giving his Autumn Statement, but already yesterday figures for the state’s borrowing for the month of October was released, and they gave Mr Hammond some wiggle room when it comes to spending, coming in well below expectations. Fortunate for the Chancellor, who is about to embark on a massive Keynesian fiscal stimulus.
So what was the good news: well, in October 2016 the UK government borrowed £4.8 billion, or £75 for every man, woman and child in the country. In a month. It is a continuation of a decade and a half where the government has spent more than it has collected in tax.
It is presented as good news: economists were forecasting that the figure would be higher, at £6 billion. But how long can we continue to borrow before our creditors run out of appetite for debt from a borrower who seems not to be able to rein in spending? The Chancellor is set to abandon his predecessor George Osborne’s “Fiscal Mandate”, an obligation that governments must run a surplus except in special circumstances – when economic growth falls below one per cent. Official growth figures today stand at 2.2%.
The reasons for borrowing coming in lower than expected is another problem: October’s tax collection was the highest since records began, not least because corporation tax income jumped 23.6% compared to the same month in 2015. In other words, the government has not been able to restrain itself when it comes to spending, but has been fortunate that the private, productive part of the UK economy has been doing well, enabling the state to loot a larger amount.
The UK government is profligate, as indeed is the governments of all other Western welfare states, spending borrowed money frivolously, while presenting it as economically responsible. They get away with it because interest rates are super low. If rates were at historical levels, say 5% higher than they are across the curve, it would add more than £80 billion to the cost of servicing the UK government’s debt every year and October’s borrowing would have been almost £12 billion instead. The vicious circle would be furiously menacing; a default would loom on the near-term horizon.
We have previously predicted how this will end: with massive QE to effectively inflate the Government’s debt away. It will mark the final capitulation, when the government realises that they can’t keep borrowing forever.