Here is my question of the week: why haven't we seen more media stories about the rapidly deteriorating public sector accounts? Whatever the media might be reporting about the credit crunch, the government seems have no difficulties borrowing huge amounts of money. All this borrowing will, one day, have to be paid back. That means more taxes for us all in the future.
The chart below illustrates what has happened so far this year. It shows the cumulative deficit for both 2007 and 2008. In other words, it is the "running tab" telling us how much the government has borrowed as each month passes. For example, the data for February gives us the amount of borrowing for January and February, while the July data tells us how much was borrowed during the first seven months of the year.
Government borrowing seems to be slipping out of control. Clearly, Darling doesn't like to say no when his colleagues ask him for a little extra spending money.
So far this year, the government is down about ₤15 billion. That is about ₤9 billion more than the same period last year. What is more, the 2007 public sector deficit wasn't exactly a model of prudence and caution.
So where are we heading with this spendfest? If the government keeps on accumulating monthly deficits like it has during the first three months of this fiscal year, the annual deficit is likely to come in somewhere between ₤50-₤60 billion. In other words, the deficit could be as high as 4 percent of GDP. That will bring the debt to GDP ratio to about 39 percent of GDP.
It is just one more sign of the growing economic calamity that the UK economy is cooking up. Lets go through the list. We have rising inflation, while growth is slowing rapidly. The housing market is crashing, while the banking system edging towards insolvency. The external deficit is the third largest in the world, and our net international position is about 25-27 percent of GDP in the red. Now, we can add a growing fiscal deficit and rising public sector debt.
What a mess we are building up for ourselves.