UK borrowing set to rise despite January surplus
By Richard Johnstone | 21 February 2013
The public sector recorded a surplus of £11.4bn in January, latest figures show, but analysts say the government is still unlikely to meet its borrowing target this year.
The January surplus, announced today by the Office for National Statistics, is £5bn higher than a year ago, in part due to cash transfers from the Bank of England’s quantitative easing programme to the Treasury.
It was agreed last November that money built up in the Bank’s Asset Purchase Programme, as a result of debt interest payments made to government bondholders, would be returned to the Exchequer. The first tranche of £3.8bn was paid to the government on January 7.
January is also a major month for tax receipts, with corporation tax, self-assessment income tax and capital gains tax payments due.
However, total public sector net borrowing in 2012/13 is still higher than in the same ten months in the previous financial year, the ONS found. Borrowing currently stands at £93.8bn for the year, around £1.5bn higher than the same period in 2011/12 if transfers from the Royal Mail Pension Plan are excluded.
In 2011/12, public sector net borrowing totalled £121.0bn, and Chancellor George Osborne said in his Autumn Statement last November that it would be lower in cash terms in 2012/13. The Office for Budget Responsibility will publish its next borrowing forecast alongside the Budget on March 20.
Analysts today said this was unlikely. The Ernst & Young Item Club said the public finances were in a worse state than expected, and the UK was on course to exceed the OBR’s £108bn borrowing forecast for 2012/13 by £11bn.
The Social Market Foundation’s analysis also concluded that the higher January surplus ‘will not be enough’ to reduce the deficit.
SMF director Ian Mulheirn said: ‘January is traditionally a strong month for the public finances, as strong income tax receipts mean that the government usually makes a repayment. While this year’s public sector borrowing figures were a slight improvement on last year, once we strip out the effect of the chancellor’s coupon raid on the Bank of England, they were not good enough to make it likely that borrowing will fall this year.
‘The chancellor made great play at the Autumn Statement of his claim that government borrowing will fall this year. He now needs a dramatic turn-around in February and March if he’s to avoid having to eat his words.’
Responding to the figures, a Treasury spokesman said: ‘Today's public sector finances show an improvement on last year. They underline what the governor of the Bank of England said last week: the road ahead will be difficult, but the economy is on the right track. The deficit has been cut by a quarter in two years and over a million private sector jobs have been created.’
Labour said borrowing was being reduced by ‘smoke and mirrors’ such as the cash transfer from the Bank of England.
Shadow financial secretary to the Treasury Chris Leslie said that ‘underlying borrowing so far this year is rising and is £5.3bn higher than the same period last year’ if this is removed.
‘A flatlining economy means the government is borrowing more to pay for economic failure as the welfare bill is up. By failing on growth and jobs, David Cameron and George Osborne are failing on the one test they set themselves – to get the deficit and debt down,’ he added.