Borrowing up in first two months of 2016-17

22 Jun 16

Public sector borrowing has increased in the first two months of 2016-17, despite large reductions in grants from Whitehall to local authorities, according to figures from the Office for National Statistics.

The organisation found borrowing for April and May stood at £17.9bn, around £200m more than the same two months in 2015.

Analysing the figures, the Office for Budget Responsibility claimed that meeting its £55.5bn borrowing forecast for 2016-17 would require a £19.5bn reduction over the full financial year.

“Over the first two months PSNB [public sector net borrowing] is £0.2 billion higher than last year, although it is too early to draw meaningful conclusions about the likely path over the year as a whole,” it stated.

Borrowing in April had been revised up by £1bn due to an upward revision of central government spending. This was despite what the OBR called “large downward revisions to central government grants to local authorities” across a range of service grants, which were down £2.8bn (or 12.3%) to £20.1bn.

"The latest revised data show that current grants to local authorities were £2.8bn lower in April. This is the same size as the reduction we forecast for the whole year, which suggests that the changes to the profile of payments for these grants has meant that this reduction has all come through at the start of the year," the OBR stated.

Reviewing the figures, Alasdair Cavalla, senior economist at the Centre for Economics and Business Research, said the figures showed that irrespective of the outcome of the EU referendum, George Osborne’s borrowing targets would still be hard to achieve.

He highlighted that the ONS had also reported that 2015/16 borrowing was now estimated at £74.9bn – lower than the £76bn published last month but still £2.7bn above the chancellor’s target.

The precise estimates are “spurious” as the future fiscal situation will depend on future trading relations following the referendum, Cavalla stated. “But if Osborne managed to stay in office after a vote for Brexit, his own targets would be even further out of reach.

“Growth is expected to be very low, meaning even in a Remain scenario existing fiscal problems have been somewhat exacerbated. In our central [Remain] scenario, CEBR’s estimate of borrowing by 2020 remains at just over £30bn.”

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