George Osborne’s plans to slash public borrowing by a quarter this year have veered off track, according to official figures, after the government’s finances were hit by Brexit worries in May.
The government’s spending deficit was just £0.4bn lower than the same month last year, leading to a £9.7bn deficit, which analysts had expected to be no more than £9.5bn.
The figures are a setback for the chancellor, who has set himself a target of cutting the annual deficit to £55bn this year and to create a surplus by 2019-20.
Osborne’s task was made more difficult after revisions to last year’s figures showed the government had borrowed £74.9bn for the financial year ending in March 2016, overshooting the Office for Budget Responsibility forecast of £72.2bn for 2015-16.
The Office for National Statistics said the chancellor’s borrowing in the current financial year to date was £17.9bn, a £0.2bn rise compared with 2015.
Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said the public finance figures “cast more doubt” over whether Osborne could achieve a budget surplus by the end of this parliament.
“Undeniably, hefty public borrowing reflects the impact of uncertainty created by the EU referendum on the economy,” Tombs said. “The latest figures therefore provide just a taste of what Brexit would do to the health of the government’s finances.”
The government coffers were boosted in the main by stamp duty on land and property, which rose by just over a fifth to £2.1bn in the period. Overall, government tax receipts increased over the period by 3.4% to £103.8bn.
But this was swallowed up by a 2.1% rise in government expenditure to £119.7bn between April and May this year, as higher state pension payments, net investment and debt interest costs all increased.
The figures also show that local authorities borrowed heavily to cope with steep cuts in central government grants.
The British Chambers of Commerce chief economist, David Kern, said: “Although borrowing fell marginally in May, the first two months of the current financial year point to disappointing progress in reducing the deficit, and our assessment remains that reaching a budget surplus by the end of the decade will be difficult to achieve.
“The slow progress so far is not surprising given the difficult economic circumstances facing the UK, which is making it more difficult to generate tax receipts. Stabilising the public finances remains a critical task, without which it will be difficult to achieve sustainable long-term economic growth,” he said.
Tombs agreed: “Even if the UK votes to remain in the EU this week, we think that the chancellor only has a slim chance of meeting his budget surplus goal. In particular, the fiscal projections rest on very optimistic assumptions for revenues from tax avoidance measures and savings from the welfare budget.
“Meanwhile, the Conservatives’ slim majority in the House of Commons likely means it will be impossible for the chancellor to get political support for a further intensification of austerity in order to obtain a budget surplus.”
This article was written by Phillip Inman Economics correspondent, for theguardian.com on Tuesday 21st June 2016 13.14 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010