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UK borrowing falls in April but Osborne misses full-year target by £3.8bn

Published 24/05/2016

Chancellor George Osborne has overshot his borrowing target by £3.8 billion
Chancellor George Osborne has overshot his borrowing target by £3.8 billion

Britain saw borrowing fall last month, but official figures showed that George Osborne missed his target for the full year by more than previously thought.

The Office for National Statistics said public sector net borrowing excluding banks dropped by £0.3 billion to £7.2 billion in April, compared with the same month last year.

But in a blow to the Chancellor, the ONS said public sector net borrowing excluding banks for the complete financial year ending in March was £76 billion - £2 billion higher than its previous estimate.

The Office for Budget Responsibility had forecast borrowing to hit £72.2 billion for 2015/16, meaning the Chancellor has overshot his borrowing target by £3.8 billion.

The ONS said public sector net debt excluding banks rose by £49.6 billion to £1,596 billion in April compared with 2015 - equivalent to 83.3% of gross domestic product (GDP).

Last month's figures provide a dismal start to the new financial year for Mr Osborne after economists pencilled in borrowing to fall to £6.4 billion in April.

The worse-than-expected results come despite Government tax receipts hitting £55.9 billion last month, up 2.7% compared with April 2015, as it was boosted by rises in VAT receipts, income tax, stamp duty and National Insurance contributions.

However, corporation tax dropped by 5.1% to £0.3 billion over the period, according to the official figures.

The ONS said the fall in borrowing was triggered in the main by a £0.7 billion drop in local government borrowing, offset by a £0.5 billion jump in central government net borrowing.

A Treasury spokesman said: "Today's figures show further progress in fixing the record post-war deficit we inherited: borrowing is falling and we have the lowest April monthly deficit since the great recession.

"But the fiscal repair job is not finished and it would be dangerous to put this at risk.

"As uncertainty ahead of the referendum weighs on our outlook, Treasury analysis has shown that if the UK votes to leave the EU on June 23, we would be tipped into a year-long recession and receipts could fall by £36 billion in the long term, unwinding years of hard work."

Mr Osborne has pledged to return the UK to a surplus by 2020, with the OBR forecast stating that the UK would have a budget surplus of £10.4 billion in 2019/20 and £11 billion the year after.

Samuel Tombs, chief UK economist of Pantheon Macroeconomics, said April's "bloated" borrowing figures are an early sign that the Chancellor will struggle to meet his borrowing targets this year, or achieve a budget surplus by the end of parliament.

He added: "With the fiscal projections also resting on optimistic assumptions for revenues from tax avoidance measures and savings from the welfare budget, we continue to think that the Chancellor will have to either implement more austerity than planned to achieve a budget surplus by 2020, or abandon his goal."

Howard Archer, chief UK and European economist at IHS Global Insight, shared a similar view. He said: "The muted start to fiscal year 2016/17 will fuel doubts about George Osborne's ability to get the deficit down to £55.5 billion in 2016/17."

He added: " The more the economy slows amid heightened uncertainty ahead of the June EU referendum, the more challenging the fiscal target of £55.5 billion for 2016/17 will become.

"The Chancellor will certainly need growth to pick up once the referendum is out of the way, assuming that there is a vote to remain in the EU."

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