Brexit latest: public borrowing worse than expected in wake of referendum vote

The surplus in July of £1bn was worse than the £1.6bn City of London analysts had expected and leaves the 2016-17 deficit on course for an £11bn plus overshoot of the Office for Budget Responsibility's March target

Ben Chu
Friday 19 August 2016 13:47 BST
Callers to HMRC's helpline left on hold for up to an hour
Callers to HMRC's helpline left on hold for up to an hour (Getty)

The public finances were weaker than expected in the wake of the Brexit vote, official figures showed today.

July has traditionally been a month of surplus for the public finances as it is one of the four months when companies pay a share of their annual corporation tax dues over to HMRC. City of London analysts had expected a surplus of £1.6bn.

But the outturn was a surplus of just £1bn according to the Office for National Statistics. The surplus was also £200m lower than the same in the same month last year.

The figures imply the Government is set to breach the £55.5bn deficit target for 2016-17 outlined by the Office for Budget Responsibility at the time of the March Budget.

Economists expect the shock Brexit referendum result on 23 June to slow the economy markedly, which will result in tax revenues falling well short and leaving the Government’s deficit reduction plans adrift.

"July’s UK public finances figures gave us the first indication of how the vote to leave the EU will slow progress in reducing the deficit over the coming years" said Paul Hollingsworth of Capital Economics.

Samuel Tombs of Pantheon said that if the weaker trend of the first four months of this fiscal year were to continue the Government would overshoot the full year target by around £11.2bn.

Set to overshoot


Corporation tax receipts in the month were £7.5bn, up a decent 8.4 per cent on the same month last year and helped by the first payment of the Government's bank corporation tax surcharge. But taxes on production, including VAT were 0.8 per cent lower.

"The public finances...corroborate downbeat activity surveys which suggest the economy is struggling" said Mr Tombs.

Receipts heading down with business activity?

Capital Economics

The Chancellor, Philip Hammond, has already said he will "reset" fiscal policy in the forthcomiing Autumn Statement, with anticipation that he could announce a form of fiscal stimulus to prop up growth and help avert a recession.

Hammond on borrowing

"Some form of fiscal stimulus to support the economy in the face of Brexit-related worries seems almost certain" said Martin Beck of the EY Item Club. "And with the Exchequer enjoying record-low borrowing costs, there is unlikely to be a more opportune time to turn on the fiscal taps.”

In response to today's figures the chief secretary to the Treasury David Gauke said: "As we keep working to cut the deficit, we are well-placed to handle any challenges and seize the opportunities as our economy adjusts. We are determined to build on our economic strengths to ensure Britain is a country that works for everyone.”

Borrowing for the fiscal year to date is now £23.7bn.

This is 11.3 per cent (£3bn) lower than the same point in 2015-16 but well undershooting the 26 per cent reduction forecast by the OBR in March for the full fiscal year.

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