Fears were heightened on Tuesday that George Osborne will miss his deficit reduction targets after the latest official figures showed that the government’s budget deficit was 10% higher last month than in November 2014.
The City said the chancellor now faced an uphill struggle to cut the deficit to £68.9bn in the 2015-16 financial year after figures for the first eight months showed borrowing already at £66.9bn.
Despite news that the deficit for November was bigger than expected, the Office for Budget Responsibility, the independent body that produces forecasts for the Treasury, said it was still possible that the chancellor would be able to stick to his plan.
The OBR said a number of one-off factors, including £1.1bn of fines paid by banks last November and the timing of payments from the Department for International Development to the World Bank, had made the figures look worse than they were.
“Over the first eight months of the financial year, borrowing was only £6.6bn lower than last year,” the OBR said. “If borrowing was to fall at the same average year-on-year rate in the next four months, public sector net borrowing (PSNB) would only fall by around £10bn in 2015-16 as a whole. Considerable uncertainty remains over prospects for borrowing in the rest of the financial year, but we continue to expect PSNB to fall more sharply over the final four months of the year than over the first eight.”
But City economists were taken aback by news that the deficit in November stood at £14.1bn, up from £12.8bn a year earlier, and questioned whether the chancellor would be able to deliver a budget surplus by the end of the parliament without further tax increases or spending cuts.
Samuel Tombs at Pantheon Macroeconomics said: “The public finances still are not improving as quickly as the chancellor anticipates, raising the prospect that he will have to announce additional austerity measures to achieve his goal of budget surplus by the end of this parliament.”
Howard Archer, economist at IHS Global Insight, said the chancellor faced a “massive task” to meet his fiscal target, even though the public finances could be volatile from month to month and allowing for the OBR’s conviction that there would be a hefty jump in self-assessment tax receipts in January.
Labour’s shadow chancellor John McDonnell said Osborne had failed to deliver on his promises made five years ago when he became chancellor.
“George Osborne promised in 2010 that this would be the year the books would be balanced and austerity would come to an end, but instead the year is ending with borrowing and debt both going up,” he said.
A Treasury spokesman blamed the rise in borrowing last month on a number of “one-off factors”.
He added: “Beyond these factors, we can see that our plan is working, with government receipts growing – stronger income tax, VAT and on-shore corporation tax – showing the benefits of a growing economy with record employment levels.”
Analysts said it would require a big improvement in the remaining four months of the year to hit the OBR forecast. In the same months of 2014-15, the government borrowed £16bn.
“There was no festive cheer for the chancellor in November’s UK public finances figures,” said Paul Hollingsworth of Capital Economics. “Indeed, it now looks almost impossible for Mr Osborne to meet the OBR’s forecast for the fiscal year as a whole.”
Hollingsworth added that if the trend for the first eight months of the year continued, borrowing would total around £81bn for 2015-16. “The upshot is that, barring a Christmas miracle, the chancellor looks extremely unlikely to meet his borrowing forecasts this year.”
Source:https://www.theguardian.com
