The chancellor is on course to miss his deficit-cutting target this year, according to the latest figures, giving him a headache in the run up to the 2015 election when the economy takes centre stage.
Weak tax receipts pushed borrowing to £11.6bn in August excluding bank bailouts, £700m more than a year earlier according to the Office for National Statistics. Borrowing in the fiscal year so far, from April to August, was £45.5bn, £2.6bn higher than the same period last year.
Economists said the poor start to the year had put at risk the Treasury’s official target of reducing borrowing to £95.5bn in 2014-15 from £105.8bn in 2013-14. Howard Archer, chief UK economist at IHS Global Insight, said Osborne had “a mighty tough job” on his hands to meet the target.
Martin Beck, senior economic adviser to the EY ITEM Club, said Osborne might be forced to use his autumn statement in December to announce more spending cuts or tax rises to meet his target.
“August’s public finances data suggest that deficit reduction remains a grindingly slow process. The chances of the chancellor enjoying a fiscal windfall from the strong economic recovery in time for the autumn statement are looking increasingly slim.
“Rather than being in a position to offer some tax or spending sweeteners to kick in before next May’s general election, he may be faced with the unpalatable choice of announcing further fiscal tightening or a slippage of deficit-reduction plans.”
Samuel Tombs, senior UK economist at Capital Economics, said: “August’s public finance figures show that the coalition is still struggling to bring borrowing down as quickly as planned in the March budget.
“If this trend is maintained in the remaining seven months of the fiscal year, then borrowing will come in at £105bn, some £10bn more than the Office for Budget Responsibility forecast in the March budget.”
Higher borrowing was largely driven by weak income tax receipts, reflecting weak wage growth and distortions which flattered revenues in the early part of last year when bonus payments were delayed to take advantage of the cut in top rate tax to 45p from 50p in April 2013.
The economy will be a key battle ground in the run up to the general election, with George Osborne likely to argue that it is only safe in the hands of the Conservative party.
Ed Balls, the shadow chancellor, outlined his commitment to deficit reduction in his party conference speech on Monday, in a bid to reassure the public and businesses that Labour can be trusted to run the economy responsibly.
George Nikolaidis, economist at manufacturing trade body EEF, said: “Borrowing needs to drop faster if the government is to hit its target before the end of the fiscal year and in time for the 2015 general election.
“Slow progress in cutting the deficit is mostly down to muted wage growth constraining income tax revenues. Higher VAT receipts from a consumer-led recovery and stamp duty income from a booming housing market have failed to offset this drag.”
The August borrowing figures were based on a new measure introduced by the ONS to bring them in line with European standards.
On the previous headline measure, borrowing came in at £12.5bn, £1bn more than economists had forecast. Economists said there was still chance Osborne could meet the full year target if the public finances improved in the later part of the fiscal year.
Nikolaidis said: “Most analysts seem to agree that forthcoming wage growth should greatly improve the Treasury’s balance sheet by reeling in more income tax.
The chancellor is set to argue that one-off increases in income tax from the self-employed in January will also brighten the picture considerably.”
theguardian.com
Weak tax receipts pushed borrowing to £11.6bn in August excluding bank bailouts, £700m more than a year earlier according to the Office for National Statistics. Borrowing in the fiscal year so far, from April to August, was £45.5bn, £2.6bn higher than the same period last year.
Economists said the poor start to the year had put at risk the Treasury’s official target of reducing borrowing to £95.5bn in 2014-15 from £105.8bn in 2013-14. Howard Archer, chief UK economist at IHS Global Insight, said Osborne had “a mighty tough job” on his hands to meet the target.
Martin Beck, senior economic adviser to the EY ITEM Club, said Osborne might be forced to use his autumn statement in December to announce more spending cuts or tax rises to meet his target.
“August’s public finances data suggest that deficit reduction remains a grindingly slow process. The chances of the chancellor enjoying a fiscal windfall from the strong economic recovery in time for the autumn statement are looking increasingly slim.
“Rather than being in a position to offer some tax or spending sweeteners to kick in before next May’s general election, he may be faced with the unpalatable choice of announcing further fiscal tightening or a slippage of deficit-reduction plans.”
Samuel Tombs, senior UK economist at Capital Economics, said: “August’s public finance figures show that the coalition is still struggling to bring borrowing down as quickly as planned in the March budget.
“If this trend is maintained in the remaining seven months of the fiscal year, then borrowing will come in at £105bn, some £10bn more than the Office for Budget Responsibility forecast in the March budget.”
Higher borrowing was largely driven by weak income tax receipts, reflecting weak wage growth and distortions which flattered revenues in the early part of last year when bonus payments were delayed to take advantage of the cut in top rate tax to 45p from 50p in April 2013.
The economy will be a key battle ground in the run up to the general election, with George Osborne likely to argue that it is only safe in the hands of the Conservative party.
Ed Balls, the shadow chancellor, outlined his commitment to deficit reduction in his party conference speech on Monday, in a bid to reassure the public and businesses that Labour can be trusted to run the economy responsibly.
George Nikolaidis, economist at manufacturing trade body EEF, said: “Borrowing needs to drop faster if the government is to hit its target before the end of the fiscal year and in time for the 2015 general election.
“Slow progress in cutting the deficit is mostly down to muted wage growth constraining income tax revenues. Higher VAT receipts from a consumer-led recovery and stamp duty income from a booming housing market have failed to offset this drag.”
The August borrowing figures were based on a new measure introduced by the ONS to bring them in line with European standards.
On the previous headline measure, borrowing came in at £12.5bn, £1bn more than economists had forecast. Economists said there was still chance Osborne could meet the full year target if the public finances improved in the later part of the fiscal year.
Nikolaidis said: “Most analysts seem to agree that forthcoming wage growth should greatly improve the Treasury’s balance sheet by reeling in more income tax.
The chancellor is set to argue that one-off increases in income tax from the self-employed in January will also brighten the picture considerably.”
theguardian.com
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