The budget deficit in Britain set a record in August, and Chancellor of the Exchequer George Osborne could be in for some tough times from the British public should he continue to push through cuts in an attempt to contain it.
Bloomberg reported Friday that the London-based Office for National Statistics announced a new record shortfall, not including the government’s support for banks, of 14.4 billion pounds ($23.5 billion). Tax revenues posted an increase of 1.8%, but government spending topped that at 2.5%.
Economists believe that Osborne will have to make a tough choice: either surrender his self-imposed goal of cutting the deficit in three years or continue to follow an austerity program that is almost certain to provoke a backlash from the public.
“If you extrapolate from today’s figures, we will be somewhere between 10 billion and 35 billion higher than expected for the year,” said George Buckley in the report. Buckley, an economist at Deutsche Bank in London, added, “The deficit is only fractionally higher than last year, so in some ways it’s good news, but we’re still looking at a big overshoot.”
While Osborne will have to figure out whether a miss at the deficit target would make markets skittish and cost the country more in borrowing costs or would simply be seen as the reasonable thing to do in a tough economy, he did get some support from Bank of England Governor Mervyn King.
Saying that it would be acceptable for the government to fail to meet Osborne’s goal as long as there was a valid reason for it, King was quoted saying, If it’s because the economy’s grown slowly, yes, indeed, and that was always part of the plan.”
A drop in tax receipts is a large part of the problem. While the Office for Budget Responsibility (OBR) had forecast an increase of nearly 4% for the full year, instead 2012 has seen almost no growth at all. The August number fell under the loss of 2.1% in corporate taxes.
The country’s economy as a whole had shrunk for a third straight quarter in Q2 of this year, prompting the Labour Party to say that austerity measures are making things worse.