Deficit reduction ‘just smoke and mirrors’

Latest borrowing figures show the coalition is drawing down the deficit – but Labour says "smoke and mirrors" are obscuring the real picture.

Figures from the Office for National Statistics (ONS) showed public sector net borrowing actually notched up a surplus in January 2013 of £11.4 billion.

That represents a significant £5 billion improvement on the repayment seen in January 2012 and reflects an increased overall surplus of £14.9 billion.

It also takes into account the transfer of the Royal Mail pension fund, which reduces borrowing by £28 billion, and the transfer of the Bank of England's asset purchase facility, knocking £3.8 billion off the government's deficit in January 2013.

"Strip away the smoke and mirrors, like the transfer of cash from the Bank of England, and underlying borrowing so far this year is rising and is £5.3 billion higher than the same period last year," shadow Treasury minister Chris Leslie said.

Labour pointed out the Institute for Fiscal Studies (IFS) think-tank had warned against ignoring the asset purchase facility's impact on the public finances, as the Treasury has done.

The IFS, issuing is own analysis of the figures, said chancellor George Osborne was likely to be "disappointed" by today's figures.

"What matters more than the level of borrowing this year is the outlook for revenues and spending in the medium term," IFS senior research economist Rowena Crawford said.

"Some of the extra borrowing so far this year is due to Whitehall departments underspending by less than assumed.

"This may not persist and therefore might not concern the chancellor – in particular if the money is being spent well. Potentially more concerning is the low growth in tax receipts and the high growth in spending on welfare benefits: were these to persist into future years then the large planned fiscal tightening might need to be increased."

The ONS said net borrowing stood at £93.8 billion for the ten months to the end of January 2013. Excluding the Royal Mail pension switch, that is £1.5 billion higher than in the same period last year.

"The longer this stagnation and failure continues, the worse off our country will be and the worse off families and pensioners will be," Leslie added.

"But instead of helping ordinary working families, David Cameron and George Osborne have decided to give millionaires a tax cut in six weeks' time.

"We urgently need a change of course from this government to create the growth and jobs needed to get the deficit down.

"Clinging on to this failing plan will mean borrowing, more long-term damage to our economy and more years of falling living standards."

Today's figures will strengthen the hand of shadow chancellor Ed Balls, whose attacks against the coalition's uncompromising approach to deficit reduction have made him an extremely irritating figure on the government benches.

That did not stop author and historian Anthony Seldon calling for him to step down yesterday, however.