Belfast Telegraph

Euro contribution dashes hopes of slashing defecit

By John-Paul Ford Rojas

An extra £2.9bn contribution to the European Commission budget has delivered a blow to George Osborne's hopes of cutting the deficit as it pushed up public sector borrowing in December.

Official figures showed a shortfall - excluding the effect of bank bailouts - of £13.1bn for the month, up from £10.3bn a year before.

The difference was entirely accounted for by the UK's higher European contribution, recalculated because the economy was performing better than had been thought.

This will be partially made up for by a refund and rebate totalling £2bn, not likely to be recorded in the public finances until the next fiscal year.

But it means borrowing for the April-to-December fiscal year to date is now, at £86.3bn, just 0.1% lower than in 2013/14.

That compares with the independent Office for Budget Responsibility (OBR) forecast of a 6% fall in the annual deficit for the year to March. It was revised down last month from a tougher target of 11%.

There was better news from income tax and capital gains tax receipts, which saw their best December performance in four years, climbing by 3.1% to £12.6bn on the year.

Revenues from income tax have caused a headache in recent months as they have not been growing as much as expected despite the upturn in growth and record job numbers

The year-to-date borrowing figure was boosted by a £2.5bn downward revision, partly due to a £900m upward revision in income tax receipts so far in 2014/15.

Vat revenues for the year to date were also marked up, by some £700m.

Underlying net debt was £1.483trn - 80.9% of gross domestic product, a record figure.

Samuel Tombs of Capital Economics said: "December's UK public finance figures show that the pace of deficit reduction remains disappointingly slow in light of the economy's recent strength.

"In order to meet the OBR's forecast made only a month ago for a 6% reduction in borrowing this year, the deficit will have to be a hefty £6 billion,or 54% lower, in the remaining three months of this fiscal year than it was last year.

"Admittedly, January should see a £3bn or so boost to self-assessment income tax receipts, which relate to the 2013/14 year to which some taxpayers deferred income to take advantage of April 2013's cut in the top rate of income tax.

"But even stripping out the effect of that boost, borrowing will still have to be £3bn, or 26%, lower than last year - a very tall order."

Belfast Telegraph