The public sector was in surplus by £16.5bn in April, as a result of the one-off transfer of funds from the Royal Mail pension scheme to the Treasury, it was revealed today.
Ministers have taken over responsibility for the pension liabilities of the government-owned postal service, ahead of its possible privatisation. Transferring the scheme’s £28bn assets sent public spending figures into the black, the Office for National Statistics said.Without the transfer, public sector net borrowing would have been around £11.5bn for the month, compared with borrowing of £9.1bn in the same period last year.
Under the terms of the pensions transfer, the government assumes both the fund’s liabilities accrued up to March 2012 and the bulk of its assets. The liabilities of the unfunded scheme, similar to that for the civil service, are contingent liabilities and therefore not recorded in the public sector finances. However, the asset transfer does provide the government finances with a one-off boost in the short term.
This has also reduced public sector net debt by more than £16bn, but it remains just over £1 trillion, equivalent to 64.8% of gross domestic product.
The ONS also reiterated that government expenditure would increase over the longer term as a result of the transfer as pensions are paid to retired Royal Mail workers.
The figures were published as the International Monetary Fund called on the government to adjust its deficit plan to support growth, and also to prepare for possible tax cuts to boost the economy.
In a report on the UK economy, the fund said that strong fiscal consolidation was under way and cutting the deficit over the medium term remained essential. However, it added that with the economy back in recession and underperforming, there was ‘scope within the current overall fiscal stance to improve the quality of fiscal adjustment to support growth’.
It called for further use of quantitative easing by the Bank of England, and also possibly cutting further the already historically low 0.5% interest rate. The government should also make ‘budget neutral reallocations’ to infrastructure projects that have a large impact on the wider economy.
If the recovery remained ‘significantly below forecasts even after substantial additional monetary stimulus and further credit easing measures’, the ‘planned fiscal adjustment would need to be reconsidered’, the report added.Under these circumstances, the government should reconsider ‘the path of consolidation’ as part of a multi-year plan focused on reducing the UK's structural deficit once the economy is stronger.
Such ‘fiscal easing’ should involve ‘credibly temporary’ measures such as tax cuts and infrastructure spending, rather than increasing government current spending.
Responding to the report, Chancellor George Osborne said the government was already using ‘the credibility we’ve earned’ from deficit reduction to support lending to businesses and build infrastructure.
He added: ‘I welcome the IMF’s continuing support for the UK’s deficit reduction plan – they agree that “reducing the high structural deficit remains essential”, and make clear in their statement that they consider the current pace of fiscal consolidation to be “appropriate”.’
