Belfast Telegraph

Chancellor on course to meet borrowing targets following budget deficit fall

Chancellor Philip Hammond is on course to meet his borrowing targets after the budget deficit fell in December and revised figures painted a brighter picture for the UK's public finances.

The Office for National Statistics (ONS) said public sector net borrowing dropped by £0.4 billion to £6.9 billion last month, above economists' expectations of £6.7 billion.

However, borrowing in November was revised down to £11.3 billion from £12.6 billion , meaning the public finances finished 2016 in better shape than first thought.

The downward revision helped Government borrowing for the financial year to date - April to December - record a 14.3% drop to £63.8 billion, compared with the same nine months in 2015.

The Office for Budget Responsibility (OBR) - the Government's fiscal referee - said in November that it expected the Chancellor to overshoot the Government's previous borrowing targets, revising its outlook from £55.5 billion to £68.2 billion for 2016/17.

Martin Beck, senior economic adviser for EY ITEM Club, said November's brighter performance would help the Chancellor achieve the OBR's revised target.

"This leaves the Government well placed to undershoot the OBR's full-year forecast of £68.2 billion by a comfortable margin," he added.

"If the final three months of the fiscal year see the same improvement as the first nine, borrowing would come in just above £61 billion."

The OBR has predicted debt to rise from 84.2% of gross domestic product (GDP) last year to 87.3% for 2016/17.

The ONS said public sector net debt excluding banks climbed by £91.5 billion to £1,698.1 billion in December, equivalent to 86.2% of GDP.

Mr Hammond ditched his predecessor's target of balancing the books by 2020, vowing instead to put the public finances back in the black ''as early as possible'' in the next Parliament, as part of a new draft Charter for Budget Responsibility outlined in the Autumn Statement.

The sharp drop in borrowing for the financial year to date came as central government tax receipts recorded a near 5% rise to £476.8 billion in the nine months to December 2016.

National Insurance contributions jumped 9.2% to £90.9 billion over the period, while corporation tax takings climbed 9.9% to £36.2 billion.

VAT receipts also recorded a rise, lifting 3.2% to £101.2 billion in contrast to the same nine-month period in 2015. Income tax receipts were up 2.6% to £115.2 billion.

John Hawksworth, chief economist at PwC, said the stronger outlook for the public finances was in line with the better-than-expected performance of the UK economy since the Brexit vote.

But he said the budget deficit was " still uncomfortably high", leaving the Chancellor with little "additional room for manoeuvre" in the March Budget.

A spokesman for the Treasury said the Government had made "significant progress in repairing the public finances" by driving down the deficit over the past six years from 10% of GDP to 4%.