LONDON (Reuters) - Surging tax receipts in April pushed British public sector borrowing down, but the deficit still chalked up a record for the month and some of the improvement may have been a result of one-off factors.
Still, the figures suggested the worst is over for the public finances and that while the new government will still have to rein in spending, it will be able to so against the backdrop of higher receipts as the economy comes back to life.
The Office for National Statistics said on Friday that public sector net borrowing came in at 9.955 billion pounds, lower than analysts’ forecasts of 11 billion.
Borrowing for 2009/10 was revised lower by 7.5 billion pounds. Excluding the financial sector interventions, it stood at 156.1 billion pounds, close to 11 percent of GDP, and some 10 billion pounds lower than predicted in the budget.
“The fact that the rate of deterioration in the public finances slowed further in April does not disguise the fact that they are still in a dismal state and that the coalition government has a major task ahead of them,” said Howard Archer, economist at IHS Global Insight.
Britain’s Conservative/Liberal Democrat coalition government has made cutting the budget deficit a priority and on Monday is set to announce 6 billion pounds of spending cuts for the current fiscal year to be made by finding efficiency savings.
New chancellor George Osborne will then present an emergency budget on June 22 in which he is expected to announce significant further fiscal tightening beyond what the outgoing Labour government had planned.
Faced with the worst recession since World War 2, Britain’s public finances had deteriorated at an alarming rate, prompting Osborne, when in opposition, to raise comparisons with crisis-hit Greece and fan fears of the country losing its triple-A credit rating.
“It is welcome that borrowing has come in lower than expected for last year due to a windfall on tax receipts, but borrowing in April and for last year was still at record levels, which is why we need to act now to cut the deficit,” said a Treasury spokesman.
Officials pointed to receipts going up as people looked for ways around the new 50 percent tax rate on earnings above 150,000 pounds by employers bringing forward payments. Financial sector bonuses may have also played their part.
In cash terms the jump in receipts was massive, with National Insurance payments up a whopping 22.4 percent on the year. VAT receipts were up 34 percent, the biggest increase since March 2005 after the sales tax went back up to 17.5 percent at the start of this year.
“A genuine turn in the public finances appears to be in prospect,” said Philip Shaw, chief economist at Investec.
“On a year-on-year basis, tax receipts have risen in five of the past six months and although January’s hike in VAT has of course helped, this comparison holds true even when one excludes VAT inflows.”
editing by John Stonestreet, Ron Askew