BRITAIN recorded the largest budget deficit for any October since 2009, dealing a blow to Chancellor of the Exchequer George Osborne less than a week before he unveils a key fiscal statement.
Net borrowing excluding public-sector banks was £8.2bn compared with £7.1bn a year earlier, the Office for National Statistics said in London on Friday. Economists in a Bloomberg News survey forecast £6bn. Government receipts fell 1.8% and spending increased 3.1%.
The figures set the stage for the Autumn Statement and Spending Review that Mr Osborne will announce on November 25. Commitments to increase spending on security in the wake of the Paris attacks and plough billions into infrastructure will come against a backdrop of further cuts to government departments as Mr Osborne seeks to deliver on a commitment to return Britain to surplus by 2020.
“In one line: terrible borrowing figures provide grim backdrop to Autumn Statement,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics in London.
The data “extinguish any lingering hope that the chancellor will be able to soften his austerity plans materially,” he said.
‘Too high’
In the first seven months of the financial year, the deficit came in at £54.3bn, down 11% from a year earlier. That leaves Mr Osborne on course to overshoot his target of cutting the shortfall to £69.5bn, or 3.7% of gross domestic product (GDP), in the full financial year that ends in March. The Office for Budget Responsibility (OBR) will publish new forecasts on Wednesday.
In a statement, the Treasury said Friday’s figures show “the job is not yet done and government borrowing remains too high.”
With spending on health, defence, schools and overseas aid protected from cuts, other departments are facing real-terms reductions of as much as a third over the next four years, extending the austerity that has helped to bring down the deficit from a record 10.2% of GDP — £153bn — in the aftermath of the financial crisis.
The spending review is also significant politically for Mr Osborne, who suffered a blow last month when unelected legislators in the House of Lords rejected his flagship welfare reform — a plan to cut the cost of tax credits that top up the incomes of people on low pay.
Key test
Mr Osborne has promised to use his statement next week to soften the impact. A key test will be how well the measures he announces go down with members of his own Conservative Party, many of whom said the original plan penalised the working families that the Tories pledged to support when it won a majority in the May general election. Mr Osborne remains the favourite with bookmakers to take over from Prime Minister David Cameron before the 2020 election.
While the Lords’ decision leaves a question mark over £4.4bn of the £12bn of welfare cuts that Mr Osborne has pledged to deliver, economists expect the chancellor to find money without digging further into departmental budgets, as he has in the past.
One possibility, according to Investec Securities, is that weaker than forecast inflation will allow the OBR to cut its estimate of the cost of paying interest on index-linked gilts.
The increase in spending in October was led by government departments, whose outlays rose 4.2% on the year. Revenue was depressed as the Treasury received less in gilt-coupon payments from the Bank of England’s Asset Purchase Facility. Excluding this source of income, government revenue rose 1.4%.
The measure used to calculate how much the Treasury needs to borrow in the financial markets showed a surplus of £65m, leaving the total deficit so far this financial year at £52.3bn. Net debt was £1.53-trillion, or 80.5% of GDP.
Bloomberg
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