Yesterday's public sector borrowing stats gave us a sharp reminder just why we need to get on with those spending cuts. Net borrowing for August was actually up on last year, and year-to-date is only marginally below last year - despite the increase in VAT and throttling back on public investment.
Looking at the detail, the scariest single number is that for debt interest payments. Year-to-date they have increased by £8.1bn, a staggering 73%. Looking at the rolling 12 month total, they are now running at £39bn pa, up by £12bn pa from a year ago (see chart above).
The most recent official forecast for debt interest came with the Emergency Budget in June. It reckoned debt interest this year (2010-11) will be £43bn, and we're currently running a bit ahead of that.
The problem is that even if the Comprehensive Spending Review manages to deliver George's forecast cuts, debt interest is still forecast to rise to nearly £70bn by 2015-16. Which will be nearly £3000 pa for every single household.
And that is why there must be no backsliding. So far, the gilt market has been impressed by the coalition's resolve, and has actually cut the interest rate on government debt by about 0.6% since May. But disappointment on delivering those cuts could very easily reverse that, setting in motion the Doomsday Machine we've blogged so often (ie the situation where the government has to borrow more and more just to pay for increases in debt interest).
PS "The Government's agenda, is not one of laissez-faire. Markets are often irrational or rigged. So I am shining a harsh light into the murky world of corporate behaviour. Why should good companies be destroyed by short-term investors looking for a speculative killing, while their accomplices in the City make fat fees? Why do directors forget their duties when a fat cheque is waved before them? Capitalism takes no prisoners and kills competition where it can." Poor old St Vince. He has always played to the gallery, and is clearly having immense problems controlling himself, now he has a real job with real responsibilities. It would be a kindness to relieve him of those responsibilities and allow him to free rein to shoot his mouth off like he always used to. We all agree markets are often irrational or rigged, but as Richard Lambert reminds us, there is no practical alternative. It's markets that have delivered the standard of living we enjoy today. Left to government we'd still be living in mud huts.
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