Skip to main content

UK Fiscal Deficit Widens in June Sparking Fears That Austerity is Failing

UK governmental borrowing expanded by roughly 50 percent in June due to a drop in corporate tax receipts, higher debt servicing costs, and higher payments to the EU budget, producing a wider budget deficit, and reviving the debate over economic policies and growth.

UK budget deficit rose in June due to a more than a 50-percent increase in government borrowing year-on-year, resulting in the opposition Labour party harshly criticising the ruling Tory-Democratic Unionist Party (DUP) coalition as ‘failing government’. 

The widened budget deficit has further fuelled the austerity debate, putting into question the efficiency of the cabinet’s most recent spending cuts, and exacerbated the concerns of household incomes, consumer confidence, and economic growth.

The UK government had to increase their borrowing in June following the rise in the budget deficit by over 50 percent year-on-year to £6.9 bln, resulting in raising  gilt (government bond) yields and putting upward pressure on the Bank of England’s (BOE) interest rates. 

Corporate tax receipts declined, and the broader economic policy in the UK seems to be in the direction of tightening on the monetary side, and loosening on the fiscal side.

Treasury Chancellor Philip Hammond, however, expressed his reluctance to soften his stance on fiscal policy, having said that UK governmental debt is ‘too high’. 

Her Majesty’s Treasury said in a statement that it is working on a “credible fiscal plan” that would enable “sound public finances”, whilst contributing to a “stronger economy”.

The decline in tax receipts stems from the slowdown in the UK economic growth in the recent months, and higher taxed and lower budget spending, known as austerity measures, are not helping growth any longer. 

The Treasury, therefore, will have to provide a fiscal stimulus to the economy, thus going even deeper into the borrowing territory in the coming months, whilst the BOE will have to raise rates due to the gilt market dynamics.

UK’s income tax and capital tax receipts rose by 7.1 percent year-on-year, to £12.7 bln, despite a higher inflation and lower consumer sentiment and household disposable incomes. 

Corporate tax revenue dropped by 3.2 percent year-on-year to £4.8 bln, the Office for National Statistics (ONS) said.

All this means the UK state finances are entering the muddy waters of higher uncertainty, and it is unknown when the borrowing spree will bottom out. 

Only a stronger economic growth will allow for an improvement in the budget situation, but there is currently little certainty, when the economy will start accelerating.

The budget deficit is projected to widen due to a rise in government borrowing to a total of £58 bln this year compared to last year’s total borrowing of £46 bln.

“It is now looking likely that the deficit will rise this year for the first time since 2012-13,” Phil Shaw of London-based asset management company Investec said. 

“Unless there is a sensible public debate over the UK’s fiscal challenges, the government will face an uphill task in providing a coherent response to deliver sustainable public finances,” he added.

In the early 2010s, the UK government introduced its fiscal austerity plan, allowing to shrink the budget deficit by cutting expenditures, to the widespread dismay of the British public. 

Austerity is not working in the post-Brexit reality, however, and whilst the ultra-low BOE borrowing costs (at 0.25 percent) have provided little support to the economy, the government will have to invest money into growth if Downing Street want the tax base to expand.

In the first quarter of fiscal year 2017-2018, Her Majesty’s government borrowed £22.8 bln, which is not much compared to previous years, but the rising budget deficit is a disturbing development. 

In 2009-2010, the government’s net borrowing was as high as £150 bln per fiscal year, meaning the current projections of £58.3-billion borrowing for this year are relatively low. 

Yet, a realignment in the UK broader economic policy is crucial.

“Looking beyond the current financial year, we would expect the decline in the budget deficit to resume if current tax and spending plans are maintained. 

This should give the chancellor some room for manoeuvre in his autumn budget to ease up on austerity in priority areas like health, social care, policing and housing investment,” John Hawksworth of PwC said.

The UK’s widening budget deficit was mainly driven by the increased costs of debt servicing – debt interest payments rose by a stunning 33 percent due to higher market volatility associated with the tumultuous Brexit process. 

Higher payments to the EU budget, which the UK is still part of, also contributed to the higher UK budget deficit – in June 2017, UK’s payments to the EU rose by £700 mln year-on-year.

There is some hope for a quick rebound in the UK economy and the government’s budget, though. 

In June, inflation surprisingly fell from 2.9 percent to 2.6 percent, encouraging a better consumer sentiment, and retail sales posted an improvement. 

Coupled with the still robust gains in individual and capital tax receipts, as well as a solid labour market, Chancellor Hammond’s task of introducing a sound fiscal policy is markedly easier than the fiscal data suggests.


Popular posts from this blog

Iran Killing Command: The use of firearms in dealing with protesters

The document you see on the image is the order of the commander of the Tehran repressive force to all the units based in the city.

Based on this agenda, the mercenaries of the corrupt government Islamic Republic of Iran have been allowed to use firearms in the event of any protest movement against people by the regime.
This is a murder command.
The repressive force of the law, known to the world's famous police and guardians, should protect the lives of its citizens, by freeing their mercenaries, they allow them to murder Iranians who are protesting the corruption in the government and you have the important message that if you come to the streets in protest of corruption and torture and massacre, we will kill you.
Because, according to criminal Khomeini, maintenance of the system is obligatory.
A corrupt government that is so hideous that spend billions of dollars from the national treasury and popular capitalto the suppression of its people and the countries of the region, must be ov…

Armenian protesters block traffic, railways & airport as protest leader loses PM bid

Anti-government protesters disrupted traffic in Armenia’s capital, blocking railways and roads leading to Yerevan International Airport, after the parliament voted against opposition leader Nikol Pashinyan’s bid for interim PM.
Protesters managed to block streets connecting downtown Yerevan to residential districts, disrupting transportation in Armenia’s capital, footage from the scene shows. 
Yerevan’s metro system has also been paralyzed as demonstrators sit on the tracks, preventing trains from passing.
Meanwhile, protesters disrupted traffic on a road leading to Yerevan’s Zvartnots International Airport, located just 12km from the center of the city. 
Consequently, some passengers had to go the rest of the way on foot in order to catch their flights, according to Sputnik news agency.
Railway services have also been disrupted all across the country amid the demonstrations, a spokesman for South Caucasus Railways confirmed to Interfax. 
Some other highways, including the one connecting th…

ایران فرمان قتل : دستور استفاده از سلاح گرم در برخورد با معترضان

سندی که در تصویر میبینید دستور فرمانده نیروی سرکوبگر انتظامی تهران به همه یگانهای مستقر در این شهر است.
بر اساس این دستور کار ، مزدوران حکومت فاسد نظام جمهوری اسلامی اجازه یافته اند که درصورت بروز هرگونه جنبش اعتراضی از سوی مردم علیه رژیم ، از سلاح گرم استفاده کنند.
این دستور یک فرمان قتل است.
نیروی سرکوبگر انتظامی که به ظاهر و تعریف شناخته شده پلیس در سراسر جهان ، میبایست حافظ جان شهروندان باشد ، با آزاد گذاشتن دست مزدوران چکمه پوش خود انها را مجاز به قتل ایرانیان معترض به فسادهای موجود درلایه های حکومت میکنند و این پیام مهم را در خود دارد که اگر در اعتراض به  فساد و شکنجه و کشتار به خیابانها بریزید شما را خواهیم کشت.
چرا که به گفته خمینی دجال، حفظ نظام از اوجب واجبات است.
حکومت فاسدی که انقدر وقیح هست که میلیاردها دلار از خزانه ملی و سرمایه مردمی را صرف سرکوب مردم خود و کشورهای منطقه میکند باید سرنگون کرد.
اکنون چهل سال است که کشور ما به اشغال این ملایان جنایکتارخونخوار و اسلام تحمیلی در آمده است .
هنوز باورش برای برخی سخت است که درک کنند کشور ما به معنای واقعی کلمه از سوی بنیادگرایان الله…