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Government borrowing set to undershoot forecasts

By Richard Johnstone | 20 September 2013

Lower public sector borrowing in August means the government is on track to borrow less than the Office for Budget Responsibility has forecast for 2013/14, economic analysts said today.

Figures published by the Office for National Statistics revealed that monthly borrowing, if one-off payments to the Treasury are removed, was £13.2bn. This is down around £1.2bn from the same month last year.

Overall borrowing for the five months of the financial year to date stands at £46.8bn, down £3.7bn over the same period last year.

The ONS also today revised down total borrowing in the 2012/13 by £800m, to £115.7bn.

Responding to the figures, the Ernst & Young ITEM Club, which uses the same modeling methods as the Treasury to produce economic forecasts, said that the figures were ‘good news on all fronts’

Nida Ali, economic adviser to the group, said higher tax revenues and lower spending was ‘a step in the right direction’.

‘Stripping out the temporary factors, overall borrowing in 2012/13 was £115.7bn. Therefore, even if there is no improvement in the public finances this financial year, the government is comfortably on track to undershoot the OBR's full-year borrowing forecast of £119.8bn,’ Ali added.

‘And, given that the recovery in activity has been much faster than the OBR had forecast, there would appear to be scope for an even bigger undershoot.’

Rowena Crawford, senior research economist at the Institute for Fiscal Studies, said that, if the trends over the first five months of the year continued, borrowing could come in around £13bn lower than forecast.

‘While the monthly data are volatile, the picture over the first five months of this financial year is one of faster growth in receipts than the OBR forecast for the year as a whole.

‘This may in part be the result of economic growth having turned out stronger than forecast by the OBR at the time of the March Budget.’

However, Crawford added that tax receipts for the year so far had been complicated by some highly paid individuals moving part of their income from last tax year into the current year to take advantage of the reduction in the top rate of income tax.

‘Therefore we should be cautious about inferring too much good news from developments over the past few months,’ she said.

In its response to the data, the OBR said lower borrowing in the financial year to date was driven by lower-than-expected local government borrowing. Councils have borrowed around £3.1bn less in the year so far than had been forecast.

‘Following further downward revisions to net borrowing in 2012/13, meeting the 2013/14 full year forecast in our March Economic and fiscal outlook would imply an increase of £4.2bn over the year as a whole,’ the OBR stated.

Responding to the figures, a Treasury spokesman said: ‘Borrowing is down this month, and revisions show that borrowing this year and last year was lower than previously thought.

‘The economy is turning a corner, but there is a long way to go and the government is sticking to the economic plan that has already cut the deficit by a third and enabled the private sector to create over 1.4 million new jobs.’

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