By Richard Johnstone | 21 August 2013
Higher-than-expected government spending meant that the public sector borrowed £62m in July, a month that usually shows a surplus in the public finances, the Office for Budget Responsibility has said.
The OBR’s analysis of the figures, published by the Office for National Statistics today, stated they were £3bn worse than predicted, as there had been market expectations of a £2.9bn surplus. In the same month in 2012, there was a £800m surplus.
Central government current expenditure increased by 3.7% in the month, compared with last year, mainly due to total spending on public services growing by 4.5%.
Although government receipts also grew in the period, this was not enough to stop the government from having to borrow. In addition, £400m of the £5.3bn transferred from the Bank of England's quantitative easing account to the Treasury in July was used for public spending, meaning borrowing would have been higher if this was excluded.
The OBR said that departmental spending is often volatile on a month-to-month basis and can be subject to revision. Its commentary on the figures suggested spending may be higher due to changes in ‘the spending profile’ caused by the creation of new NHS bodies following the government’s health reforms.
The report stated the initial estimate of July 2012’s public finances had also shown a deficit, of £600m, but this was subsequently revised to a £800m surplus.
The ONS also released figures for borrowing for the financial year to date. The total deficit in the first four months of 2013/14, excluding one-off payments from quantitative easing, is £36.8bn, up £1.6bn from the same period in 2012/13.
The Institute for Fiscal Studies said spending over the four months from April to July was 4.3% higher than the same months of 2012. This is above the OBR’s forecast for central government current spending to rise by 2.2% above 2012/13 levels in the year.
Central government tax receipts over the same period are also up, by 4.9%, the IFS said. The OBR's forecast is that receipts will rise by 3.0% in the year.
Rowena Crawford, a senior research economist at the IFS, said it was too early to say if both of these trends would continue throughout the financial year.
‘Receipts of taxes on both corporate and personal income have grown more quickly so far this year than forecast by the OBR for the year as a whole. But we should be cautious of inferring too positive a message from this, as income tax payments are likely to be more front-loaded this year than last as people shifted income to take advantage of the new, lower 45p top rate of income tax and receipts of VAT have grown more sluggishly than forecast for the year as a whole.
‘On the other hand central government current spending has grown more quickly so far than forecast for the year as a whole. But some of this could be merely differences in the timing of payments this year compared to last, and therefore might unwind later on.’
