Latest Public Sector News

22.12.15

Deficit target in doubt as November borrowing soars beyond forecast

Public sector net borrowing was far higher than expected in November, jumping to £14.2bn, casting further doubts on the government’s cost-saving programme.

Some forecasts predicted a figure closer to £11.8bn.

Although borrowing tends to be higher in November than in other months, this is the highest level of borrowing for November since 2013, according to figures from the Office for National Statistics (ONS). It represented an increase of more than 10% compared with November of last year.

Local government borrowing this year was equivalent to that in November of last year at £2bn, although this data is just an estimate based on budget figures received from the DCLG and devolved administrations, while data from 2014 was based on final outturn figures.

Economists were already concerned ahead of the Spending Review that the chancellor might miss the government’s borrowing targets this year, with a lot of improvement needed to hit the Office for Budget Responsibility’s (OBR’s) forecast.

This is now the second month in a row to see a year-on-year rise in borrowing, but experts from EY Consulting suggested that there are a number of factors that could depress borrowing in the near-term.

Senior economic advisor to the EY ITEM Club, Martin Beck, said: “Growth in the economy appears to have picked up pace in Q4 compared to the previous three months, which should support receipts, but in-year spending cuts announced by the government in June have not yet been delivered in full.

“Previous policy decisions should boost annual growth in self-assessment receipts in January and February, typically bumper months for that tax stream. But in practice, even excluding the housing association effect, a sizable overshoot in borrowing, perhaps of around £10bn seem likely. Deficit reduction remains a grindingly slow process.”

Adding to that, Paul Hollingsworth of Capital Economics said: “There was no festive cheer for the chancellor in November’s UK public finances figures. Indeed, it now looks almost impossible for Osborne to meet the OBR’s forecast for the fiscal year as a whole.”

Other economists argued that meeting borrowing forecasts this year would only be possible “with a Christmas miracle”.

Despite “considerable uncertainty” remaining over prospects for borrowing in the rest of the financial year, the OBR said it continues to expect borrowing to “fall more sharply” over the final four months of the year than over the first eight. This is mainly due to a drop central government grants to local authorities and growth in Whitehall’s larger revenue streams.

A Treasury spokesperson said borrowing had increased due to a number of one-off factors likely to unwind next month, adding: “Beyond these factors, we can see that our plan is working, with government receipts growing – stronger income tax, VAT an on-shore corporation tax – showing the benefits of a growing economy with record employment levels.”

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