No short cuts. Plenty of hard work left to do. That was the Treasury response to news that public borrowing in April was 27% down on the same month a year earlier. A guarded welcome rather than jubilation was the order of the day.
Why the cautious response? There are four main reasons. The first is that the deficit is a lot higher than the government would like it to be – at £87bn in 2014-15 it was £50bn more than George Osborne forecast when he first became chancellor in 2010.
What’s more, as the Treasury freely admitted, after glacial progress in the last couple of years, the deficit is still one of the highest in the developed world.
The second reason is that the improvement is still coming primarily from lower than expected spending rather than higher tax receipts. Although the year-on-year increase in revenues of 2.7% was artificially depressed in April by a couple of one-off factors, the Treasury will want to see evidence that growth in the economy is definitely generating higher tax receipts before announcing that the corner has been turned. Up until now, growth has been relatively revenue-poor, because many of the jobs that have been created are low paid and not eligible for income tax.
Meanwhile, there have to be doubts as to whether the more than 7% fall in spending between April 2014 and 2015 can be sustained. The OBR is expecting spending to increase by just less than 1% in the current 2015-16 financial year.
The third reason for the Treasury not to get too excited is that April marks the start of the financial year and there is a long, long way to go.
Finally, there’s the little matter of politics. The chancellor has a budget to deliver in early July and it will be a tough one. Osborne will announce how he is going to take £12bn out of the welfare budget and £13bn out of Whitehall departmental spending.
As a result, the “sunny days are here again” mood of his pre-election budget in March is no longer appropriate. The message now is that a job that was only half done in the last parliament now has to be completed.
