LONDON (Reuters) - Britain’s government remains on track to meet its politically sensitive budget goals for the current tax year, data showed on Friday, although a weak economy is still keeping borrowing at historically high levels.
Deficit reduction is the central economic policy of Britain’s Conservative-led coalition. When it came to power in May 2010, Britain’s budget deficit was 11 percent of annual economic output, one of the highest for a major economy.
Stripping out various one-off effects, public borrowing totalled 35.9 billion pounds in the first three months of the 2013-14 tax year, the same as in April-June 2012, the Office for National Statistics said.
This is despite the fact that the ONS revised up May borrowing by more than 2 billion pounds, after it decided an earlier official estimate of 3.2 billion pounds in future tax revenue from secret Swiss bank accounts looked too optimistic.
Nonetheless, the government is still well-placed to meet forecasts from its budget watchdog that it will borrow no more than 120 billion pounds in the current tax year, equivalent to 7.5 percent of economic output, economists said.
“Peering through the fog caused by the various distortions, the underlying public finances appear to be essentially on track ... to meet the government’s targets,” said Howard Archer, chief UK economist at IHS Global Insight.
Finance minister George Osborne, in Moscow for a meeting of leaders from the G20 group of major economies, was also upbeat.
“We’ve had a good set of public finance numbers and what they confirm is a longer term trend, which is Britain getting on top of its debts,” he said.
Friday’s data does not alter the broader picture that deficit reduction has stalled for more than a year due to weak economic growth.
Britain’s opposition Labour party kept up its attacks on the government for failing to spur quicker growth which would have brought in more revenues.
“These disappointing figures show that our stalled economy has led to deficit reduction grinding to a halt,” said lawmaker Chris Leslie, a Labour spokesman on the economy.
While revisions showed borrowing in 2012/13 was more than 2 billion pounds lower than estimated last month - at 116.5 billion pounds or 7.4 percent of GDP - this is little changed from the 7.7 percent recorded in 2011/12.
Whether there is a significant reduction in borrowing this year will hinge on growth finally starting to pick up - for which economists see some promising signs.
“The better economic backdrop should help reduce benefit outflows and lift receipts over the months ahead,” said Investec economist Victoria Clarke.
Economists were less positive about the detail of June’s public finances release.
The government’s preferred measure of public sector net borrowing, which excludes some of the effects of bailing out Britain’s banks in 2008, came in at 8.5 billion pounds, 0.5 billion above economists’ average forecast.
On an underlying basis, which additionally strips out receipts from interest paid to the Bank of England on its 375 billion-pound bond holdings and cash from the Royal Mail’s pension scheme, June borrowing was 12.4 billion, up from 11.9 billion last year.
The ONS said a statement from the Swiss Bankers Association this month “cast significant doubt” on an official estimate that Britain would receive 3.2 billion pounds from a deal to recoup unpaid tax from British residents’ secret Swiss bank accounts.
Britain’s finance ministry promoted the deal last year as a major step in its campaign to tackle tax avoidance and evasion - something Osborne hopes to pursue further in Moscow as part of his chairmanship of the G7 group of advanced economies.
($1 = 0.6579 British pounds)
Additional reporting by Alessandra Prentice in Moscow; Editing by Toby Chopra