Jeremy Hunt is under pressure to make election giveaways as public finances improve. Photo: REUTERS/Toby Melville
The government has borrowed £11.4 billion less than expected this financial year, official figures show, as higher taxes help offset rising borrowing.
Public sector borrowing in the first five months of the current financial year totaled £69.6 billion. This was 14% below the Office for Budget Responsibility (OBR) forecast in March, according to the Office for National Statistics (ONS).
However, increased government spending meant that borrowing in August rose year-on-year and was much higher than economists had expected.
In August, total public sector net borrowing accounting of public sector banks amounted to 11.6 billion pounds sterling.
That was £3.5 billion more than the same month last year and the fourth-largest August deficit since monthly reporting began in 1993.
It also exceeded consensus expectations of £11.1 billion. but it was £1.4 billion less than the OBR forecast back in March.
All of this will contribute to the debate over whether Chancellor Jeremy Hunt should cut taxes.
Although the volume Borrowing remained high, Thursday's data showed that was partly offset by higher revenue from the Treasury's hidden tax.
The government's total tax collection in August was £76.6 billion, up £3.1 billion on the same month last year and £1.2 billion more than the OBR had expected.
VAT receipts were £16.8 billion, up £3.1 billion from the OBR forecast.
Debt interest payments were also lower than expected at £5.6 billion compared to OBR forecast of £7.8 billion.
<р>Ashley Webb, an economist at Capital Economics, said the data would give the chancellor «a little more wiggle room in the election sweepstakes.»
The chancellor has ruled out tax cuts this fall, but Mr Webb said he now has He is better positioned to announce tax cuts or spending increases in his spring budget in March 2024.
However, early evidence suggests the economy is weakening, which will weigh on tax revenues, Mr Webb warned.
“While the OBR's forecasts are based on real GDP growth of 0.2% and 2.1% in 2023/24 and 2024/25 respectively, we expect growth of just 0.1% and 0.8%,” he said.
Total Public sector net debt amounted to 98.8% of UK gross domestic product, up 2.3 percentage points from August 2022. This is a level last seen in the early 1960s.
Chancellor Jeremy Hunt said: “These figures show why, after helping families through the pandemic, we now need to balance the books. This becomes much easier when inflation is under control, because higher inflation leads to higher interest rates, so we need to stick to the plan to bring it down.»
Michal Stelmach, senior economist at KPMG in the UK, said, that the government faces a “trade-off between higher taxes and lower spending.”
Mr Stelmach added: “We expect public sector net borrowing to reach around £120 billion in 2023-24. This would be the lowest level since 2019-20, although it would still be 4.6% of GDP compared with the government's medium-term target of 3% under current fiscal rules.»
Samuel Tombs, Chief An economist at Pantheon Macroeconomics in the UK, said that while GDP data has so far been better than expected, business survey data shows the economy is weakening.
Interest payments on government debt are also likely to be higher than the OBR expected due to higher interest rates, he added.
“Households typically benefit from tax cuts ahead of a general election, but we expect that Mr. Hunt will make only symbolic gestures in the fall statement. » Mr. Tombs said.
Rising gold yields and the retail price index, which influence government spending, mean interest payments on debt during the fiscal year are likely to be around $35 billion pounds higher than the OBR's latest forecast, Mr Tombs said.
The government's commitment to the triple lock means it will have to increase the state pension by 8.5% in April, in line with wages that «We think 2024/25 will continue to be a year of net tax rises, despite the political pressures created by the general election.» , Mr. Tombs said.
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