Government borrowing figures boost for Tories

http://www.theguardian.com/business/2015/apr/23/borrowing-figures-boost-for-tories

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UK government borrowing declined by less than expected last month, but still gave the coalition a boost after the official forecast of Britain’s annual budget deficit proved to be too gloomy.

Public sector borrowing was £7.4bn in March, boosted by higher tax receipts and a decline in government borrowing costs. Together with a £2bn downward revision to borrowing in previous months, this left borrowing during the 2014-15 fiscal year, which runs to the end of March, at £87.3bn, below last year’s £98.4bn total and the Office for Budget Responsibility’s forecast of £90.2bn.

However, many economists had predicted a healthier £7bn figure for March, mindful of the economy’s strong growth over the past year and Treasury forecasts of bumper self-assessment income tax receipts.

With one of the largest annual deficits in the EU, the UK is scheduled under coalition plans to embark on a severe spending squeeze during the next parliament. According to International Monetary Fund figures, only Ireland is readying itself for a larger dose of austerity.

The Institute for Fiscal Studies, which gave its judgment on the main parties’ deficit-reduction plans on Thursday, has said for several years that the next government was likely to raise taxes alongside making spending cuts.

In March, income tax and corporation tax receipts increased over the year, but were offset by a decline in stamp duty and higher local authority borrowing costs.

Vicky Redwood, chief UK economist at consultancy Capital Economics, said undershooting the OBR’s forecasts brought some good news for the coalition parties in the runup to the general election. “The breakdown showed that the improvement in March’s borrowing figure partly reflected a £1.5bn or 3% annual rise in tax receipts – another encouraging sign that the economic recovery is finally feeding through to the public coffers,” she said.

“The improvement also reflected a £1.6bn drop in debt interest payments as a result of the fall in gilt yields over the last year, underlying how vulnerable the public finances now are to a change in conditions in the bond market.”

Dennis de Jong, managing director at the currency broker UFX.com, said the borrowing figures had given the Tories a boost two weeks before the election. “George Osborne has been banging the drum that a Conservative government is voters’ only choice to deal with the deficit – and he has plenty to shout about now that he has hit his borrowing target.

“However, the rise of the SNP and their anti-austerity message is a huge threat to the Tories and has the potential to destabilise the economy. The markets are going to be on tenterhooks on May 7 and probably for a few days afterwards as the negotiations to form a government heat up.”

The Office for National Statistics said it was possible that figures for the financial year ending in March were provisional in some cases and could be revised in the coming months.