Public sector borrowing in August overshoots expectations
Economists have said Chancellor Philip Hammond may have cause for concern after public sector borrowing came in well above expectations in August, due to slower tax income and higher spending.
Public sector net borrowing, excluding state-owned banks, rose by £2.4 billion in August, to £6.8 billion, the Office for National Statistics (ONS) said.
Economists had expected borrowing for August of £3.4 billion.
The figure was the largest August borrowing for two years. It also marked the first year-on-year increase in August net borrowing for three years.
Public sector net debt, excluding state-owned banks, increased by £15.9 billion to £1,781.9 billion in July, equivalent to 84.3% of gross domestic product (GDP).
The ONS said borrowing in the financial year to date, excluding banks, was £17.8 billion, which is £7.8 billion less than during the same period in 2017.
That covers the period between April to August this year. This was the lowest level of year-to-date borrowing for 16 years.
The borrowing figure for the latest full financial year to March was also revised up slightly to £39.9 billion. This remains the lowest net borrowing since before the financial crisis.
Samuel Tombs, chief UK economist at Pantheon Macro, said the August figures could leave the Chancellor feeling “a little nervous”, but that there is still scope to ease off austerity measures.
“At the very least, he won’t need to announce offsetting tax rises to fund the extra money that recently has been earmarked for the NHS,” he said.
“Indeed, faced with pressure from his own MPs to boost his party’s opinion poll standing and the political imperative to show that the economy has prospered after leaving the EU in March 2019, we expect the Chancellor to ease off austerity measures in other areas too, ensuring that fiscal policy doesn’t dampen GDP growth next year.”
But Ross Campbell, public sector director at the Institute of Chartered Accountants, warned that progress in reducing debt could be undone by a disorderly Brexit.
Tax receipts rose by 1.6% in August to £55.6 billion compared with August 2017, but total expenditure outweighed this with growth of 6.8% to £60.4 billion.
Growth in receipts came from Value Added Tax (VAT), National Insurance contributions and Income Tax. But income from duties on tobacco and alcohol fell compared to last year.
The uprating of social security benefits such as pensions accounted for notable growth in expenditure. The Government’s “triple-lock” policy on pensions has seen the basic state pension uprated by 3% this year.
Contributions to the EU budget were also higher compared to the previous August, coming in at £1 billion.
“The public sector finances continue to perform slightly better than forecast, with growth remaining steady over the summer,” he said.
“Nevertheless, despite some successes in reducing borrowing and a smaller deficit, there have been no inroads made yet into the debt and, if the economy does face a downturn following Brexit, it is likely that borrowing will have to increase again.”
Following the official release, the pound was trading 0.47% lower at 1.320 US dollars. Verse the Euro sterling was 0.5% lower at 1.211.