In Depth

10% rise in UK deficit blows hole in Tory election plans

Far from offering tax cuts, George Osborne looks likely to be promising even more austerity

The Mole

Suddenly George Osborne’s ace card for winning the 2015 general election looks like a joker. Official figures released yesterday show that government borrowing has risen year-on-year and pushed Britain’s deficit ten per cent higher – mainly because tax receipts have produced far less revenue than expected.

As a result, far from being able to offer pre-election tax cuts, the Chancellor is likely to be forced to announce even deeper cuts in public spending this autumn.

David Cameron and Osborne taunted Ed Miliband when the Labour leader forgot to mention the deficit in his party conference speech. That looks a pretty sick joke today.

The figures released by the Office for National Statistics show that although the economy is growing, the government borrowed £11.8 billion last month - £1.6 billion more than it borrowed in September 2013. Total borrowing between April and September hit £58bn, a rise of £5.4bn on the same period in 2013.

The Treasury is now well behind its target of cutting the deficit - the difference between government income and expenditure - by 12 per cent in 2014/15. 

The black hole in government finances has been caused by a slump in tax receipts because many of the new jobs that Cameron and Osborne are always beating their chests about are on in low wages or for the self-employed sector, where 50 per cent earn less than £10,000 a year and so don’t pay any income tax at all. North Sea oil receipts are also way down on the income that Alex Salmond, the First Minister of Scotland, was counting on to finance Scottish independence.

This blows a hole in David Cameron’s unfunded £7bn promise to his party conference of tax cuts for those on middle incomes and further relief for those on low incomes by lifting the starting point for income tax to £12,500.

It also pulls the rug from under the Chancellor’s Autumn Statement on 3 December, which was supposed to be the launchpad for a general election victory with pre-election sweeteners to win over wavering voters. Instead, Osborne may have to announce deeper cuts in public spending with the election less than six months away. Osborne risks going from Santa Claus to Scrooge in one step.

All of which casts a long shadow over the Tories’ election strategy. Cameron was staking his hopes of winning a majority next May on persuading voters that only his party can be trusted on the economy. Cameron and Osborne have consistently out-performed Ed Miliband and Ed Balls with their claims they are getting the economy back on track after Labour crashed the economy into a brick wall. 

Those claims look dodgier by the day. You could almost hear the gloating from Labour when Chris Leslie, the shadow Treasury spokesman, told The Sun: "These figures are a serious blow to George Osborne.

“Not only is he set to break his promise to balance the books by next year, but borrowing in the first half of this year is now ten per cent higher than the same period last year.”

The Tories’ only solution looks like being a further squeeze on public services, including welfare benefits. 

As Robert Chote, chairman of the OBR, told Newsnight last night, “public spending as a share of national income could be heading to its lowest level since the 1930s”.

It means Cameron and Osborne may have to go into the general election promising the voters that things are going to get a lot worse - especially for those on welfare. And the same will apply to Labour, if they expect to be believed.

It is good news for Ukip, however. Newsnight reported on a leaked Tory strategy paper telling Conservative councillors not to campaign on immigration because it was a core issue for Ukip. Far better, said the memo, to stick to the economy.

After these figures, the Tories may have no alternative but to go back to blaming immigrants.

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