Osborne facing deficit challenge
Published 22/07/2014 | 13:09
George Osborne was faced with a mounting challenge to meet his deficit target today as official figures showed the strain on public finances failed to ease in June and in fact worsened over the first quarter of the fiscal year.
The figures from the Office for National Statistics (ONS) were worse than expected with underlying borrowing at £11.4 billion, little changed from £11.5 billion in the same month last year.
This was despite the Treasury coffers being swollen in June by stamp duty receipts that rose by nearly half amid the improving property market and corporation tax climbing 18% - as expenditure also grew.
Economists said it showed the Coalition was struggling to bring down the deficit in line with the independent Office for Budget Responsibility (OBR) target of a 10% fall for the 2014/15 period.
For the year to date, the underlying borrowing figure has instead risen by 7%, or £2.5 billion, to £36.1 billion.
However experts said this April-June comparison was affected by a higher tax take in April and May 2013 as bonuses were deferred because of a change to the top rate of income tax.
Public sector net borrowing for June, excluding the distorting effect of bank bail-outs, was £3.8 billion higher than the same month in 2013, but when taking out the effect of the Bank of England's quantitative easing (QE) programme was little changed.
Samuel Tombs of Capital Economics said: "June's public borrowing figures contain further signs that the coalition is struggling to bring the deficit down in line with the fiscal plans."
He said the trend in borrowing should improve as stronger economic growth boosts tax receipts but that the numbers "underline that the fiscal consolidation still has a long way to go yet before the public finances are restored to a sustainable footing".
In June, central government receipts on an underlying basis - excluding QE - were £2 billion higher, partly boosted by a 43% surge in stamp duties to £1.1 billion.
There was also an 18% rise in the Treasury's take from corporation tax and a 2% increase in income tax related payments.
Whitehall expenditure was also £2 billion higher, though the ONS said it was difficult to compare monthly spending with last year because of changes to central government funding for local authorities.
Underlying public sector debt was up to £1.3046 trillion, or 77.3% of gross domestic product (GDP), an increase on May when it was 76.4%.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "The largely good news on the growth front of the economy is still not being matched by equally good news on the public finances.
"The overall performance for April-June has clearly not been the start to fiscal year 2014/15 that George Osborne would have been looking for.
"One-quarter of the way into the tax year it looks like the Chancellor faces a battle to achieve his fiscal targets for 2014/15 and he will certainly need growth to hold up."
David Kern, chief economist at the British Chambers of Commerce, said the Government must take "difficult, and perhaps unpopular" measures to reduce the share of current public spending of GDP.
Labour seized on the figures. Chris Leslie, shadow Chief Secretary to the Treasury said: "George Osborne is not only set to break his promise to balance the books by next year, he is also borrowing more so far this year than the same period last year."