Osborne may miss deficit target after November borrowing jump

22 Dec 15
Chancellor George Osborne has been warned that the government could miss its deficit target for 2015/16 by as much as £7bn after public sector borrowing for November increased by £1.3bn compared to 2014.

Figures published by the Office for National Statistics today stated that borrowing in the month stood at £14.2bn, meaning that public sector borrowing for the financial year to date stands at £66.9bn. Although this is £6.6bn less than the same period in 2014/15, the Centre for Economics and Business Research said that spending trends had been “disappointing” for the Treasury.

“While rising income and corporation tax take and national insurance contributions have supported higher central government receipts over the past year, growth in VAT receipts is relatively subdued in the latest data, increasing by 0.8% compared with the same month a year ago,” CEBR economist Sam Alderson said.

“As such, central government receipts rose by 1.1% compared with November 2014, well below the 2.9% increase in government expenditure. Despite further falls in debt interest payments on a year-on-year basis in November, spending as a whole rose by £1.6bn compared with the same month a year ago.”

The group’s latest forecast was that the government would borrow around £80.5bn in 2015/16, higher than the £73.5bn forecast by the Office for Budget Responsibility in the Autumn Statement. Borrowing stood at £89.2bn in 2014/15.

Other pressures on government spending, which include the triple lock on state pensions that will increase payments by at least 2.5% even when inflation is low, could mean there is a deficit of £19bn by 2020/21. This is £34bn worse that the OBR’s projection of a £14.7bn surplus in that year, and removes the £27bn improvement in the public finances over the forecast period used by Osborne to cancel tax credit changes and demand lower levels of cuts to departmental spending.

In its analysis, the OBR said that one-off factors had affected the November figures. These include £1.1bn of fines levied on banks by the Financial Conduct Authority due to failings in foreign exchange business practices, which had reduced borrowing in November 2014, and an increase in central government spending due to higher contributions to the European Union (£1bn) and the World Bank (£800m).

Both of these effects are expected to “unwind” next month, but the watchdog also highlighted that lower borrowing would be needed in the remaining four months of the year to meet its projection.

“Meeting our November EFO forecast for public sector net borrowing in 2015/16 – on the basis of the current public finances data prior to implementing the housing associations reclassification – would require a £20.3bn reduction in borrowing over the full financial year.

“Over the first eight months of the financial year, borrowing was only £6.6bn lower than last year. If borrowing were to fall at the same average year-on-year rate in the next four months, public sector net borrowing would only fall by around £10bn in 2015/16 as a whole.”

However, the OBR said that it “continues to expect PSNB to fall more sharply over the final four months of the year than over the first eight”.

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