Worrying reading

The Government's borrowing figures out today are worse than what it had planned, no matter what silk phrases the Treasury utters. At this rate the Government is on target to break through £200 billion in loans for this year, as I feared at the pre-budget report and despite counter statements.

The borrowing data gives the other side to the unemployment figures, which, at best, are contradictory. The income tax take, the levels of national insurance contributions and the returns from corporation tax give a picture of how the real economy is being wrecked by the recession.

July is normally a bumper month for tax receipts. Yet all three indices hint at how hard the recession is imparting on the economy.

Compared with July a year ago, the national insurance contributions are down by 1.1% and corporation tax is down by a staggering 38%.

Income tax returns, including capital gains tax, are 14% below what is was 12 months ago. Add to these figures a 10% increase in benefits spending and we have a picture of public accounts chaos.

For the first time under this administration, the Government is forced to borrow in the month of July in order to have enough revenue to meet July's liabilities. This month's £8 billion borrowing brought the borrowing total for the first four months of this financial year to almost £50 billion or nearly 57% of GDP, the highest since records began 30 years ago.

The cost of Government borrowing consequently rose, and with it the amount of our future income, which we are yet to produce, that will have to be foregone just to pay the interest, let alone the repayment, of record public borrowing.

So far the gilt market has been assuaged by the thought that a future Tory government may mean business in bringing a sense of order to the nation's accounts. But with many more months' figures like these, the market will need a much clearer picture of what action is planned by both the Government and the opposition if long-term interest rates are not to be pushed up significantly.

The Government will then face a cruel choice, whether it lets rates rise, so putting off the pace of the recovery, or it begins serious to cut public expenditure now, and in so doing, according to many economists, wrongly I think, delaying the start of the recovery.

With public borrowing coming in at £200 billion, and the printing of money as though there is no tomorrow, it is difficult to understand the reasoning of those voices who prattle on about the dangers of cutting public spending now. If these totals are not reflationary it would be difficult to know what would be.

Action will be forced soon in order to avoid the gilt strike.

Date added: Friday 21st August 2009