The Office for National Statistics said government borrowing last month dropped to £10.1bn, the lowest since 2007, from £12.3bn in May last year – an 18% fall. The total stock of debt, excluding public sector banks, was £1.5tn or 80.8% of GDP, an increase of £83.2bn compared with May 2014.
Income tax and VAT receipts increased by more than 5% while government spending rose by just 0.1%. The government’s already diminished investment budget was reduced by 8.7% to £200m, the ONS said.
The fall in the monthly budget deficit means the government could beat the prediction of a 14% drop in the annual deficit in this financial year made by the Office for Budget Responsibility.
However, the chancellor is expected to press ahead with steep cuts to welfare budgets and Whitehall in his budget on 8 July.
A Treasury spokesman said: “We have more than halved the deficit, but at just under 5% it is still one of the highest in the developed world. We’ve learnt that there is no shortcut to fixing the public finances.
“So that is why we will bring forward a strong new fiscal framework at the budget to entrench a permanent commitment to run a budget surplus in normal times, and the budget responsibility it represents,” he said.
Alan Clarke, UK economist at Scotia Bank, said that any plaudits for the chancellor should be muted by figures that were largely based on forecasts rater than actual cash in and out of the government’s ledger book.
He said: “Clearly things could prove to have been front-loaded and the good performance could taper off. But the message is “so far so good”.
He added: “If we can’t generate good public finance numbers now when we have robust growth and falling unemployment, when can we?”
Howard Archer, chief economist at IHS Global Insight said that nevertheless, the figures were a boost for the chancelor ahead of the budget.
He said: “The public finances saw further appreciable year-on-year improvement in May, thereby extending the positive start to fiscal year 2015/16. In fact, at £10.1bn the May shortfall was the smallest for the month since 2007.
“May’s improvement meant that public sector net borrowing excluding banks amounted to £16.4bn in the first two months of fiscal year 2015/16, which was down 23.6% from £21.4 billion in April/May 2014,” he said.
Paul Hollingsworth, UK economist at Capital Economics, also said it was encouraging that total current receipts were 4.1% higher than last year, above the 3.2% rise the OBR expects for the fiscal year as a whole.
“Nonetheless, with a long way to go in order to restore the public finances to better health, a major re-intensification of the fiscal squeeze is looming,” he said.
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