U.K. government borrowing surged in the first four months of the fiscal year, a reminder of the vulnerability of the public finances as Britain braces for a no-deal Brexit.
The budget deficit between April and July stood at £16 billion, 60 per cent more than the same period last year, Office for National Statistics figures published Wednesday show.
Borrowing is rising much more quickly than budget officials forecast in March as revenue from taxes fails to keep pace with spending, a possible sign that the economic downturn in the second quarter is taking a toll.
That’s an unwelcome fiscal inheritance for prime minister Boris Johnson, who has promised £20 billion of tax cuts plus extra money for policing, health care and schools. The public finances could take a further £30 billio hit if he sees through his threat to let Britain crash out of the European Union without a deal on October 31st, forecasters estimate.
Years of post-crisis austerity have brought down the deficit from almost 10 per cent of GDP in 2009-10, the highest in peacetime history, to a 17-year low of just 1.1 per cent last year.
July is typically a good month for the public finances, as the Treasury benefits from larger-than-normal tax payments.
Overshoot Seen
But revenue exceeded spending by just £1.3 billion last month, compared with a surplus of £3.6 billion a year earlier. Tax revenue fell 0.5 per cent, though there was a modest 2.4 per cent increase when gilt-interest revenues transferred from the Bank of England are excluded. Spending jumped 6.5 per cent, boosted by departmental outlays and capital investment.
Without a significant improvement, borrowing for the year as a whole appears likely to exceed the £29.3 billion forecast by the Office for Budget Responsibility in March. The deficit fell to £23.6 billion in the 2018-19 fiscal year.
July sees many firms pay their first tax installment, based on their estimated profits for the year. Corporation-tax revenue fell 1.1 per cent from a year earlier.
Separately, for self-employed workers a second payment on account for tax liabilities in the 2018-19 fiscal year was due on July 31st. Income tax rose 1.5 per cent, with self-assessed revenues climbing 3.5 per cent.
Chancellor Sajid Javid has pledged to keep to existing fiscal rules requiring that the structural budget deficit is kept below 2 per cent of GDP in 2020-21 and the burden of government debt declines. However, there are doubts over the longer-term outlook for the public finances.
Net debt excluding the Bank of England has doubled since the financial crisis and stood at 74.1 per cent of GDP in July.
- Bloomberg
