24th February 2013
In fairness, the Item Club came out with its views a little bit before news of the rating change broke on Friday evening, but if Moody’s was having any doubts – which presumably it wasn’t – then the think tank has certainly reinforced its view.
One crumb of comfort for the Chancellor is that the Item Club is questioning a series of UK statistical fudges that have occurred on the watch of both this and the last government. These include transfers from the Bank of England to the Treasury and the interventions to rescue Northern Rock and Bradford & Bingley. The ‘assets’ are now divided between Santander and UK Financial Investments effectively the UK’s bad bank. Damningly the Item Club says it is “virtually impossible to decipher the underlying trend”.
Nida Ali, economic advisor to the Item Club says: “Although January’s headline number looks encouraging, it appears that the state of the public finances is worse than the Government and the Office for Budget Responsibility had hoped for. Stripping out the one-off factors, net borrowing in the financial year-to-date is £7.5bn higher than last year. With just two months of data pending and last year’s deficit having been revised down, there is virtually no chance of borrowing being lower on a like-for-like basis in 2012/13 than in 2011/12.
“Furthermore, the Office for National Statistics has put a ceiling of £9.1bn on the amount of cash that can be transferred from the Central Bank to the government in 2012/13. Given that this also includes the payment from the Special Liquidity Scheme, it means that the reduction in borrowing caused by the transfers from the Bank of England’s Asset Purchase Facility will be £5bn less than the OBR had forecast.
Ali adds that even with the Government failing to raise as much as it had hoped for from the 4G broadband licensing auction, there would still be a miss.
He says: “Even accounting for this setback and the lower than expected 4G proceeds, the government was still on course to miss the OBR’s 2012/13 borrowing forecast by a distance. Assuming that borrowing in the final two months of the financial year is the same as it was last year, the Government is on course to overshoot the OBR’s 2012/13 forecast of £80.5bn by almost £11bn.”