Britain was forced to borrow more than expected last month to plug the gap between spending and revenues as the government struggled to improve the public finances at a time of economic malaise.
The budget deficit was £15.4bn in December, more than the £14.8bn in the same month a year ago and a touch higher than City economists were expecting.
The Institute for Fiscal Studies, an independent think tank, said if the trends in spending and revenue were to continue for the final three months of the financial year, annual borrowing would overshoot the Office for Budget Responsibility’s December forecast by about £3bn.
“Government borrowing appears on course to be higher than planned for the current year, as austerity measures have failed to reduce government spending and weak economic growth has resulted in disappointing tax revenues,” said Chris Williamson, an economist at Markit, the data company.
“The danger is that the data add to the risk of the UK losing its AAA credit rating, a risk that will intensify significantly if Friday’s gross domestic product report shows the UK entering a new downturn.”
All three of the main rating agencies have put the UK’s top triple A sovereign credit rating on watch for a potential downgrade and yields on UK government debt have been rising recently, albeit from very low levels.
Over the financial year so far, government borrowing is about 20 per cent lower than at the same point a year ago, but this reflects the one-off transfer of the Royal Mail’s pension fund to the government books, which has flattered the figures.
After stripping out that effect, public borrowing is about 7 per cent higher than a year ago as the government’s plan to balance the books remains off track. The year-to-date figures looked a little better than last month, thanks to official revisions to previous months’ borrowing figures.
Government tax receipts, particularly corporation tax, have not increased this year as much as was forecast by the official fiscal watchdog, though they picked up somewhat in December. Spending has also been rising slightly quicker than expected.
The OBR said on Tuesday that borrowing would need to be £6.3bn lower than last year in the final three months of the year if it was to meet the watchdog’s forecast, which it made last month at the time of the chancellor’s Autumn Statement.
At that time, George Osborne said he would have to extend austerity measures by an extra two years to 2018 to close the structural current budget deficit. On the forecasts of the official fiscal watchdog, he said he would also miss his target to have public debt falling as a share of output by 2015. Last month, the level of public debt rose to 70.7 per cent of gross domestic product, up from 66 per cent a year earlier.
So far in this financial year, central government current receipts are just 0.3 per cent higher than the same period last year, much lower than the OBR’s 3.8 per cent increase forecast for the whole year. While revenues will be boosted in the next few months by the start of the transfer of the Bank of England’s quantitative easing windfall to the Treasury, this leaves revenues lagging behind forecasts.
Central government current spending is 2.7 per cent higher so far this year than last year, a touch higher than the OBR’s 2.6 per cent forecast.
The Treasury said: “These figures underline what the chancellor said at the Autumn Statement: it’s taking time, but the economy is healing. The deficit has come down by a quarter since 2010 and more than a million private sector jobs have been created.”
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