Shrinking public deficit gives Chancellor leeway to ease austerity
UK government borrowing fell more than expected last month, shrinking to the lowest borrowing figure for September for 11 years to give Chancellor Philip Hammond more leeway ahead of the budget.
Public sector net borrowing dropped to £4.1bn from £5bn a year ago, excluding stakes in publicly owned banks, the Office for National Statistics revealed, as a big rise in tax receipts boosted expectations for the upcoming budget. This was lower than the £4.5bn average forecast from City economists and the lowest borrowing figure for September since 2007.
The ONS also revised down its estimate of borrowing in the first five months of the fiscal year to £15.7bn from £17.8bn.
Growth in central government receipts slowed to a seven-month low of just 3.2% in September, with corporation tax receipts down 0.2% in the month.
Borrowing will total £25.9bn - or 1.2% of gross domestic product - this year, if the year-over-year trend in borrowing in the first six months of this fiscal year is maintained, a hefty £11.1B less than expected in the Chancellor's spring statement, said economist Samuel Tombs at Pantheon Macroeconomics. Even if the economy slowed to the level seen last year, it would total £29.2bn, or 1.4% of GDP, he added.
"The public finances have continued to improve rapidly this year, enabling the Chancellor to accommodate plans for higher NHS spending without raising other taxes or cutting spending in other departments more aggressively over the next couple of years," Tombs said.
The Budget will be announced a week next Monday, 29 October, as the Chancellor perhaps seeks to avoid Halloween headlines on the traditional Wednesday reading.
Howard Archer, chief economic adviser to the EY Item Club, said the Chancellor will be heartened by the performance so far: "It does give him some much-needed room for manoeuvre in November’s Budget as he looks to find the extra funding needed for the high-profile increased spending promised for the NHS. Even so, it looks like he will still need to raise some taxes (or reduce tax relief in some areas) to help finance the increased NHS spending."
While the hard years of austerity have brought the Conservative’s 2020/21 limit of 2% two years early, allowing the Chancellor to avoid the fiscal tightening he had flagged in the spring statement, Tombs said this was likely to be stymied by Prime Minister Theresa May's promise of higher spending as a Brexit bargaining chip for her sceptical MPs.
"It’s likely, then, that the Budget on October 29 will be a holding statement, with the real relaxation of the plans being delayed until either next year’s spring statement or spending review," he said.