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Lower-than-expected Government borrowing boosts Hammond before Autumn Statement

Published 22/11/2016

Philip Hammond can only borrow £6.9 billion for the rest of the financial year if he is to meet the latest Office for Budget Responsibility forecast of £55.5 billion for 2016/17
Philip Hammond can only borrow £6.9 billion for the rest of the financial year if he is to meet the latest Office for Budget Responsibility forecast of £55.5 billion for 2016/17

Chancellor Philip Hammond has been handed a boost in the run-up to his inaugural Autumn Statement as the Government borrowed a lower-than-expected £4.8 billion last month.

The Office for National Statistics (ONS) said public sector net borrowing, excluding state-owned banks, fell by £1.6 billion - or 25% - in October compared with the same month last year.

Economists were pencilling in a figure of £6 billion.

It came as Government borrowing, excluding banks, for the financial year to date - April to October - fell by £5.6 billion to £48.6 billion, compared with the same seven months in 2015.

It means Mr Hammond can only borrow £6.9 billion for the rest of the financial year if he is to meet the latest Office for Budget Responsibility (OBR) forecast of £55.5 billion for 2016/17.

Professional services firm PwC warned last week that Government borrowing was more likely to hit £67 billion for this financial year and overshoot forecasts by £100 billion by 2021.

The ONS said last month's better-than-expected performance was underpinned by strong tax revenue, with overall tax income in October at its strongest level since records began.

Central government tax receipts rose £3.8 billion to £59.1 billion in October, compared with the same month last year, driven in part by a 23.6% jump in corporation tax receipts to £9 billion.

Taxes raised from interest and dividends also climbed by a third to £3.9 billion over the period, while VAT receipts stepped up 2.8% to £11.5 billion.

However, Government spending expanded 2.2% to £59.3 billion last month, in contrast to October 2015, with other current expenditure - including departmental spending - rising by £1.6 billion to £34.9 billion.

A spokesman for the Treasury said: "As the Chancellor has made clear, the Government is committed to fiscal discipline and will return the budget to balance over a sensible period of time, in a way that allows space to support the economy as needed."

Mr Hammond is expected to deliver an Autumn Statement on Wednesday punctuated by ballooning Government borrowing and slowing economic growth.

He will be tasked with squaring Prime Minister Theresa May's push to help cash-strapped households with tackling a troubled economic outlook.

However, with tax receipts set to suffer a blow as Brexit uncertainty applies the brakes to economic growth, it is thought the Chancellor may struggle to introduce fresh tax cuts to help the "jams" - an acronym used by Downing Street to describe people who are "just about managing".

The ONS said public sector net debt excluding banks climbed by £50.9 billion to £1,641.6 billion in October, equivalent to 83.8% of gross domestic product (GDP).

Howard Archer, chief UK and European economist at IHS Global Insight, said October's borrowing figures provided a "decent boost" for the Chancellor ahead of the Autumn Statement, with strong tax receipts illustrating that the economy was "still holding up well".

He added: "A concern for the Chancellor is that the public finances are likely to be hampered over the rest of the fiscal year and beyond by higher gilt yields lifting interest payments and higher inflation lifting costs.

"And, of course, expected markedly-slowing growth over the coming months will take a toll on tax receipts - although this is likely to show up more after the current fiscal year.

"This highlights the limited scope that the Chancellor has for fiscal stimulus in Wednesday's Autumn Statement if he is to maintain credible adherence to fiscal discipline."

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