Government borrowing reaches lowest level in nearly ten years

Updated: 

Government borrowing has reached its lowest level in nearly a decade, but the Chancellor has overshot his independent target for shoring up the public finances. 

The Office for National Statistics (ONS) said public sector net borrowing, excluding banks, dropped by £20 billion to £52 billion for the financial year to date - April 2016 to March 2017 - in contrast to the same period the year before.

It was the lowest year-to-date borrowing figure since the financial year ending March 2008, the statistics agency said. 

However, the Government came in shy of the financial year target of £51.7 billion set by the the Office for Budget Responsibility (OBR) in the Spring Budget.

Borrowing, excluding banks, rose by £800 million to £5.1 billion last month, with economists pencilling in a lower figure of  £3 billion.

Chancellor Philip Hammond will be cheered by the performance of the UK's public finances after coming within a whisker of hitting the full-year target as the Government gears up for the General Election on June 8. 

Howard Archer, chief UK and European economist at IHS Markit, said: "Essentially meeting the revised 2016/17 fiscal target is a boost for the Chancellor's credibility after it took a knock after he swiftly and embarrassingly scrapped his March budget plans to raise national insurance contributions for the self-employed.

"Public finances over 2016/17 benefited from the resilience of the economy and a strong labour market which lifted tax receipts. Indeed, corporation tax receipts were at a record high of £55.7 billion in 2016/17."

The OBR, the Government's fiscal referee, said in March that it had expected Mr Hammond to undershoot previous borrowing targets for this financial year, revising its outlook from £68.2 billion to £51.7 billion.

It came after the Chancellor ditched his predecessor's target of balancing the books by 2020, vowing instead to put the public finances back in the black ''as early as possible'' in the next Parliament as part of a new Charter for Budget Responsibility.

However, the OBR also warned that smaller deficit hikes in four years time, coupled with cost pressures for an ageing population, meant Mr Hammond was unlikely to meet this fiscal target.

On debt, the ONS said public sector net debt excluding state-owned banks climbed by £123.5 billion to £1,729.5 billion, equivalent to 86.6% of gross domestic product (GDP).

 

John Hawksworth, PwC chief economist, said the Government should be encouraged by the shrinking deficit, but the progress could still unravel as higher inflation takes its toll.

He said: "It is good news that the deficit is coming down, but it is too soon to be complacent about the state of the public finances.

"As the OBR said last month, a number of one-off factors relating to the timing of tax receipts and spending flattered the deficit figures for 2016/17 but are likely to be reversed in 2017/18.

"Higher inflation will also act as a drag on growth over the next year while boosting some benefit payments that are linked to prices.

"So the improvement in the deficit could well be reversed in the coming financial year as the OBR predicted."

The ONS said Government income rose by 6% to £674.1 billion over the financial year, including £507 billion in taxes.

However, it forked out 2% more over the period at £698.6 billion, two-thirds of which was spent on departments, such as health, education and defence.

The amount of corporation tax raked in by the Government rose by £10 billion to £55.7 billion, while VAT lifted by £2.8 billion to £133.3 billion, and income tax rose by £8.3 billion to £184.2 billion for the financial year.

The announcement came as the level of government borrowing in the eurozone fell to its lowest level since early 2008.

Official figures showed the deficit in the eurozone was at 1.4% of annual GDP in the fourth quarter of 2016, down from 1.6% in the previous three-month period.