The public finances registered a surprise deficit in July, frustrating George Osborne's hopes of bringing down public borrowing more rapidly.
Underlying state borrowing was £500m in the month, compared with a £800m surplus posted in July 2012, according to official figures released yesterday. City analysts had expected a £2.9bn surplus driven by the rapidly improving economic outlook.
July is normally the second strongest month of the year for the public finances due to the timing of Corporation Tax payments and self-assessed income tax returns. Though total tax receipts were 3.4 per cent higher than in July 2012, government spending rose by 3.7 per cent.
Treasury sources attributed the higher spending in the month to a change in the timing of payments to the health, education and overseas aid departments. They insisted that departments were sticking to their budgets and that over the full year the effect of the change in the timing of outlays would be neutral.
Rob Wood of Berenberg Bank described the figures as "disappointing" but added: "There should be better news for George Osborne in the coming months as growth significantly beats the expectations built into the fiscal forecasts." The Office for Budget Responsibility, the Chancellor's fiscal watchdog, added that the monthly figures are liable to revision, pointing out that last year's initial report of a £600m deficit in July 2012 eventually became an £800m surplus.
Yet the broader trend in the public finances this year has, so far, disrupted Mr Osborne's hopes of making faster inroads into the deficit.
Excluding various one-offs the borrowing for the financial year to date has been £36.8bn, up from £35.2bn in the same period of 2012/13. Tax receipts over the first four months of the financial year were higher than the same period of last year.
But there are nonetheless some signs of weakness. Despite the growth seen in the services sector over the first half of the year VAT receipts are up just 1.8 per cent, versus the OBR's most recent full-year forecast of a 3.1 per cent rise.
The ONS reported that the deficit in 2012/13 was £116.5bn, £2bn lower than in 2011/12. The Government is officially targeting a £120bn deficit for 2013/14. But the Chancellor will be hoping that the gap between spending and revenues will be considerably smaller than that so he can claim to have reduced the deficit in cash terms every year.
The national debt has now risen to £1,193m, equivalent to 74.5 per cent of GDP. It is forecast to peak at 86.5 per cent of GDP in 2016-17.