The Chancellor is already in danger of busting borrowing targets for this year after more disappointment on the public finances, experts warned yesterday.
George Osborne’s fiscal watchdog, the Office for Budget Responsibility, forecasts the deficit falling from £108bn to £95.5bn for the current financial year, but the latest figures showed borrowing of £11.4bn in June – worse than City fears and just £100m lower than a year earlier.
Stripping out the effects of the transfer of Royal Mail pension assets and proceeds from the Bank of England’s money-printing programme on to the public books, borrowing for the first three months of the financial year totalled £36.1bn, £2.5bn higher than last year.
“Since the OBR expects the deficit to be about 10 per cent lower this year as a whole, the fiscal consolidation still seems to be off-track,” Capital Economics UK economist, Samuel Tombs, said.
“It looks like the Chancellor faces a battle to achieve his fiscal targets and he will certainly need growth to hold up,” IHS Global Insight’s Howard Archer added.
But the picture should improve as the year goes on because the Treasury’s coffers were artificially boosted in April and May 2013 due to deferred payments to take advantage of the new lower 45 per cent top rate of income tax, as well as a £900m tax settlement over UK funds held in Swiss bank accounts.
Rowena Crawford, a senior research economist with the Institute for Fiscal Studies, said: “There should be a significant boost to income tax receipts from self-assessment in the last three months of the current financial year.”
Aside from income tax, receipts for VAT and corporation tax last month were much stronger, reflecting a stronger economy. VAT takings were up 5.5 per cent year on year, corporation tax was up 17.9 per cent and stamp duty – due to the rapid recovery in the housing market – up 43 per cent to £1.1bn.
Victoria Clarke, an economist at Investec, added: “While the numbers for the fiscal year to date suggest some catch-up is needed to meet the borrowing forecasts, our inclination is not to be too concerned at this point. The economic backdrop is clearly favourable and this should support not only income tax inflows but the broader receipts base too.”
The figures also showed the nation’s net debt hit a new high of £1.3 trillion – equivalent to 77.3 per cent of GDP.