The deficit reduction vicious circle
by digby
Oh, this is excellent news for our British friends:
George Osborne’s attempt to cut Britain’s deficit was dealt a blow today when official figures revealed that the Government borrowed £3 billion more than expected last month.
Public sector finances suffered from a 20 per cent fall in corporation tax receipts from business while public spending rose by 5 per cent, fuelled by higher benefit payments.
Overall public sector net borrowing came in at £600 million in July, compared with a surplus of £2.8 billion in the same month last year. City’s expectations had been for a surplus of £2.5 billion.
Public sector net debt now stands at above £1 trillion, compared to £940 billion a year ago, and represents 65.7 per cent of the UK’s GDP, up from 61.8 per cent last year.
July is normally a strong month for tax income, but total receipts fell 0.8 per cent, driven by the drop in corporation tax. The poor figures were compounded by a revision of net borrowing for April to June, which was revised up by £1.4 billion. It means net borrowing is £44.9 billion, £9.3 billion higher than a year ago.
That sounds awful. Obviously, their deficit cutting has inhibited growth and they need to change course.
Terribly sorry, but that won’t be happening:
The disappointing figures are likely to put pressure on Mr Osborne to cut back on departmental spending still further.
At the weekend it emerged that civil servants in the Treasury have been privately warning colleagues across Whitehall to prepare for a fresh round of cuts following the disappointing tax receipts. These cuts could come as soon as his autumn spending statement.
“There’s a lot of nervousness and other officials are talking to their oppos [opposite numbers] in spending departments,” said a Whitehall source. “They are saying we haven’t got enough cash and expect a much, much harsher environment.”
What’s that old saying? Something about learning from the past and being doomed?
The truth is that the British seem to have found the magic formula for drowning the government in the bathtub. First you ignore everything you’ve ever learned about how to deal with an economic slump and immediately slash government spending and raise taxes. This will be explained as vitally necessary to turn the economy around as deficit spending is the central economic problem the nation faces. This will inevitably result in a double dip recession and lower tax receipts which will require even more slashing of government spending. And on and on until one day (when we’re all dead) the economy rights itself and the government is the empty shell the conservatives always wanted. Huzzah.
The US managed to avoid the worst of this, although our system has allowed individual states to do much of the work that’s kept our economy from rebounding. But the double-dip has been avoided by the behavior of stubborn wingnuts who refused to take yes for an answer when it was offered to them. Whether that will remain the case as time goes on is an open question. But those who are still clamoring for “deficit reduction” in the face of very low growth and high unemployment can certainly look to our very special friends across the pond for inspiration. They are showing the way.
Update: I heard the Very Serious Centrist Matt Miller on MSNBC earlier extolling the virtues of Mr Cameron a a leader who did the right thing by refusing to lower taxes on the wealthy as he promised in order to fight the deficit. (About four minutes in …) Talk about fiddling while Rome burns.
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