Cuts? What cuts?

The world's attention is focused on the debt problems in the US and the Eurozone, and the British media and public are still transfixed by the Murdoch hacking scandal. As a result, UK fiscal data for June, released this morning, have received short shrift -- a pity, since they show that the fiscal situation bears little resemblance to what most people seem to assume.

Recall that June is the third month of the current fiscal year, which is (or was) supposed to mark the point at which all of the harsh/brutal/regressive/(your adjective here) measures proposed by the coalition government really began to bite. So what was the outcome? Well, the current budget deficit for June was £11.8 billion, slightly higher than the £11.4 billion deficit seen in the corresponding month last year. Public sector borrowing was also up slightly, at £14.0 billion, compared to £13.6 billion last year.

As yes, well that must be because the slowdown on the economy is cutting revenues, right? No, wrong: revenues were £39.6 billion in June 2011, up from £37.5 billion in June last year. Problem is, that £2.1 billion increase in revenues was outpaced by a £2.5 billion increase in government spending, to £52.0 billion from £49.5 billion.

And (I'm anticipating your probable response here) that spending increase had nothing to do with higher interest costs. General current expenditures rose to £33.2 billion in June 2011 from £31.5 billion in June 2010, and social benefit spending, supposedly right in the government's firing line, rose to £14.7 billion from £14.2 billion.

The remarkable thing about these numbers is that they provide absolutely no support for the preconceptions of either side in the deficit debate. There's no clear evidence that a slowing economy is harming revenues, and no sign that spending is falling quickly enough to harm the economy. On the other hand, there's also no sign that the Government's deficit reduction plan is actually working, either.

One final observation: preliminary Q2 GDP data are due for release next week. These numbers suggest that government spending may prove to have been one of the main sources of growth in the economy during the quarter. That would make it harder for Labour to make a big deal about the data, which are likely to be weak(ish). However, it would also imply that the "rebalancing" of growth that the coalition is counting on is still nowhere in sight.