Wednesday 24 October 2018

Boost for Chancellor as borrowing unexpectedly falls

Government borrowing, excluding state-owned banks, fell by £200 million to £8.7 billion in November.

The Office for National Statistics revealed the latest Government borrowing figures (PA)
The Office for National Statistics revealed the latest Government borrowing figures (PA)

By Ben Woods, Press Association Chief City Correspondent

Government borrowing unexpectedly improved last month, boosting Chancellor Philip Hammond’s efforts to shore up the public finances ahead of Brexit.

Figures from the Office for National Statistics (ONS) show public sector net borrowing, excluding state-owned banks, fell by £200 million to £8.7 billion in November.

The move was below the predictions of economists, who had pencilled in borrowing to reach £9 billion last month.

The deficit excluding banks for the current financial year – April to November – hit its lowest level in a decade, dropping by £3.1 billion to £48.1 billion over the period.

Britain’s fiscal watchdog slashed its expectations for Government borrowing this year to £49.9 billion in the Autumn Budget, but hiked the outlook for 2019 and beyond as it expects paltry productivity growth to drag on the UK economy.

Updating on its forecasts last month, the Office for Budget Responsibility (OBR) called into question the Chancellor’s target for balancing the books within the next Parliament, saying the Government may not eradicate the deficit before 2031.

Sterling showed little reaction to Thursday’s update, sitting flat against the US dollar at 1.33 and slightly lower versus the euro at 1.125.

John Hawksworth, PwC’s chief economist, said: “Public borrowing in November was broadly unchanged from last year, but for the financial year to date the budget deficit is running around £3 billion less than in the same period last year.

“This reflects central government receipts growing at around 4%, while central government spending has only been rising at around 3%.

“VAT, income tax, National Insurance and stamp duty revenues have all been growing at a reasonable rate so far this year.

“As the OBR has indicated, however, self-assessment receipts in early 2018 may be less strong than in early 2017, so today’s figures still leave public borrowing on track to come in at around £50 billion in 2017/18 as a whole.”

Tax receipts rose by £2.6 billion to £54 billion last month, thanks in part to a £400 million rise in VAT, while Government spending climbed by £2 billion to £57.7 billion over the period.

Samuel Tombs, Pantheon Macroeconomics’ chief UK economist, said public borrowing was driven lower by the 5% annual jump in tax receipts.

He said: “The pick-up, however, largely reflected a jump in receipts from tobacco taxes and a squeeze on tax credits. PAYE income tax receipts rose by just 2.9%, consistent with continued weakness in wage growth.”

The ONS revealed that public sector net debt, excluding state-owned banks, increased by £72.2 billion to £1,734.8 billion in November, equivalent to 84.6% of gross domestic product (GDP).

It said the reclassification of English housing associations from the public to private sector had shaved £65.5 billion off net debt last month.

A Treasury spokesman said: “This is the best year-to-date borrowing in a decade, but there is still further to go to repair the public finances.

“We continue to build an economy fit for the future by taking a balanced approach, getting debt falling while investing in our vital public services and keeping taxes low.”

Press Association

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