The Chancellor, George Osborne, was handed more good news on the economy yesterday as the Institute for Fiscal Studies (IFS) said borrowing could be as much as £13bn lower than the Government’s target this year.
August’s net borrowing of £13.2bn was £1.3bn below a year earlier, the Office for National Statistics (ONS) said. Stripping out one-off factors such as the transfer of the Royal Mail pension fund and Treasury proceeds from the Bank of England’s money-printing programme, the deficit in the first five months of the new financial year was £3.7bn lower at £46.8bn.
Mr Osborne is attempting to meet a £120bn borrowing target for the year set by the Office for Budget Responsibility (OBR). August saw a 2.2 per cent fall in total current spending, compared with a 1.4 per cent rise in receipts. Total current spending is still rising over the year so far, but at a much slower rate than receipts.
IFS senior research economist Rowena Crawford said: “While the monthly data are volatile, the picture over the first five months of this financial year is one of faster growth in receipts than the OBR forecast for the year as a whole.
“A simple extrapolation of borrowing would suggest that borrowing this year, while still historically high, could come in around £13bn lower than forecast.”
The IFS said stronger growth was partly responsible for the improvement but added that tax payments delayed until April by high earners to benefit from the cut in the top rate of income tax had also artificially inflated revenues so far this year.
“Therefore we should be cautious about inferring too much good news from developments over the past few months,” Ms Crawford added.
Mr Osborne was also boosted by revisions to previous data as the ONS trimmed its estimate of last year’s deficit to £115.7m.
Following two quarters of stronger growth – as well as potential windfalls from Lloyds share sales and the Royal Mail float – the OBR should significantly lower its borrowing forecasts in November.
Investec chief economist Philip Shaw said: “Realistically it is quite possible that the stronger momentum of the economy helps the deficit to narrow faster and that borrowing dips below £100bn this year.”