Europe Should Be More Decisive On Monetary Union

The IMF have said that Europe's policy makers should to be more decisive in pursuing monetary union. The response to the immediate crisis was bold they said and proved the euro area has the capability to act together when required. They suggest that the operation of European Financial Stability Facility is imperative and should be secured as quickly as possible. They say crisis management is no substitute to the corrective policy actions and fundamental reforms are necessary to reinforce the EMU foundations. In the euro area fiscal responses should be adapted to the individual circumstances of each country. Fiscal sustainability is an important aim that all countries not only European countries have to take into account.

Current Budget Deficit £11.5bn

Recent figures from the ONS and HM Treasury show that the current budget was in deficit by £11.5bn in December 2009, £0.4bn more than in December 2008. Government net borrowing, the total of central and local government and public corporations together, was £15.7bn, £1.9bn more than in December 2008, when it was £13.8bn. The public sector net cash requirement, again a total of central and local government and public corporations, was £23.6bn, £2bn more than the previous year and net debt was £870bn, equivalent to 61.7% of GDP compared to 60.1% for November and 51.7% for December 2008.

If the Goverment financial interventions are excluded public secor net borrowing was £50.3bn and net debt was £740.6bn from £596.9bn in 2008.

Looking at the public sector finances in terms of the current financial year which helps to smooth out any volatility in monthly data which can often mislead, the current budget deficit is £93.4bn, the public sector net borrowing was £119.9bn, £56.3bn more than the same period of 2008-9. Net borrowing excluding Goverment financial interventions was £127.9bn, £57.8bn higher than the same period 2008-9. Public sector net cash requirement was £120.5bn, compared to a cash requirement of £51.4bn in 2008-9. Public sector net investment was £4.2bn compared with £2.7bn lastb year.

During December the Government also subscribed £5.7bn to Lloyds Banking Group rights issue and £25.5bn to the Royal Bank of Scotland group, £6.4bn of which will be treated as a capital grant. These will increase the central government net cash requirement but will reduce public corporations' net cash requirement correspondingly.

The Institute of Fiscal Studies said that the Government will not have to borrow as much as expected in the Pre-Budget Report but also that next month's figures will include self-assessment returns for 2008-9, Corporation Taxes and NICs on bonuses for this month.

Govrnment Can Still Hit Fiscal Targets

Provisional estimates of public finances released last week by the ONS show that in August the public sector current budget had a deficit of £12.8bn and net borrowing of £16.1bn. At the end of August the public sector net debt was £804.8bn or 57.5% of GDP, compared to 52.7% in 2008-9. The public sector net cash requirement was £10.4bn. The public sector current budget in August 2008 was 7.7bn and net borrowing was 9.9bn.

In the financial year so far in 2009-10, there was a public sector current budget deficit of £52.9bn and public sector net borrowing of £65.3bn. The public sector net cash requirement was £57.1bn.

The public sector net debt, excluding the financial sector intervention, according to the latest figures which are up to June 2009 show public sector net debt was £658.2bn or 46.9% of GDP compared with 43.2% in 2008-9.

Total central government receipts in August 2009 were 34.1bn, down from 37.5bn in 2008 and total expenditure was 45.6bn, down from 44.2bn at the same time last year. The Institute of Fiscal Studies commented that receipts were 9.2% lower in August this year and spending 3% higher. The 2009 Budget suggested 7.6% and 7.4% respectively. Public sector net investment was £3.3bn compared to £2.1bn last August. Between April and August public sector net investment amounts to £12.4bn, 37% higher than the same period last year. The 2009 Budget predicted investment of £43.8bn, 16% above last year.

The Institute of Fiscal Studies also commented that Government borrowing was 2.5 times as large as last year rather than twice as large as predicted so borrowing will have to slow to hit their target which is still possible with the new increases in revenue that are due this month and in the New Year.

Government Receipts Down, Spending On Target

The latest public sector finances statistics from the ONS show that in July the public sector had a current budget deficit of £5.1bn and net borrowing of £8bn. At the end of July net debt was £800.8bn or 56.8% of GDP.

The public sector current deficit is £13bn higher than last year when there was a surplus of £7.8bn and the net borrowing is £13.2bn higher than last year when the public sector was lending net of £5.2bn. Latest figures for net debt without financial sector intervention are for June when net debt was £658.1 or 46.6% of GDP. Whereas last year the public sector made a repayment of £14.5bn the net cash requirement for July this year was £0.2bn an increase of £14.7bn. Comparing the net debt shows that last year the net debt was 43.5% of GDP at £627.2bn.

Government receipts were 15.3% lower than the same month last year and government spending was 7.5% higher. Net investment was £2.9bn compared with £2.6bn last year. The Institute of Fiscal Studies said that receipts of Corporation Tax and VAT collapsed to two-thirds of their July 2008 level more than the Treasury predicted in the Budget over the year. Spending is increasing as predicted. They also add that there are good reasons to expect a better performance in revenues over the next few months. The reversal of the VAT cut scheduled for the end of 2009 is one of them.

Current Budget Deficit Higher Than Last Year

The public sector finances fiscal indicators published by the Office for National Statistics and the Treasury tell us that the public sector current budget showed a deficit £7.0 bn, £6.3 bn higher than April 2008. Public sector net borrowing was £8.5 bn, £6.6 bn higher than last year and the public sector net cash requirement, the deficit plus the interest paid to those from whom the government borrows, was £5.2 bn, £8.0 bn higher than April 2008, when there was a repayment of £2.9 bn. The public sector net debt stood at £754bn or 53.2% of GDP compared to £618.7 bn or 42.9% of GDP last April. Public sector net debt, excluding financial sector interventions for Q1 2009 was £609 bn or 42.9% GDP.

The Institute for Fiscal Studies said that the Government borrowed about £3 billion less in 2008-9 than they thought in the Budget last month. This was due they said to current spending being lower and taxes higher than thought at the time of the Budget

Bank Maintains Interest Rates At 0.5%

The Bank of England's Monetary Policy Committee decided at their meeting on 7 May 2009 that the bank rate will stay at 0.5% on commercial bank reserves. The MPC also decided to increase the size of its asset purchase programme by £50 billion to £125 billion. The world economy remains in deep recession, global output has contracted and international trade has fallen. The increase in private saving, the restructuring of balance sheets by banks and weaker global demand will continue to hold back economic activity. Another factor acting in the other direction is the stimulus given by governments around the world to improve the availability of credit by easing in monetary and fiscal policies. It was decided that as the stimulus is expected to eventually lead to a recovery in economic growth and inflation to return to the 2% target, the interest rate should remain at 0.5% and also to continue with the programme of asset purchases financed by the issuance of central bank reserves and increase its size to £125 billion.