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24.10.16

Public borrowing increases amid ‘worsening economic outlook’

An unexpected increase in public sector borrowing in the past month will make achieving a budget surplus even harder, financial experts have warned.

The latest figures from the Office for National Statistics (ONS) show that public sector net borrowing in September 2016 was £10.6bn, compared to £9.3bn in September 2015.

Manj Kalar, head of public sector at the Association of Chartered Certified Accountants, said the figures, released ahead of November’s Autumn Statement, indicated that public sector borrowing targets will be missed.

“After a slew of figures all pointing to a worsening economic outlook such as weaker growth, rising inflation and a falling pound today’s public borrowing figures were higher than expected at £10.6bn,” she said. “To put this into context, current public borrowing has already reached £45.5bn of the total forecast for the year of £55.5bn by the OBR back in the spring.

“Corporation tax and property tax receipts are both down compared to similar period over the last few years and VAT receipts are lower too. This has resulted in higher borrowing to maintain funding of public services.

“In the wake of the referendum for the UK to leave the EU [Philip] Hammond had stated that he would relax the aim to achieve a budget surplus by 2019-20. Even then, public finance leaders would have known that this did not spell the end of austerity. Today’s news has made the room for manoeuvre even more difficult.”

However, the figures also show that net borrowing for the financial year so far (from April to September 2016) was £45.5bn, lower than the £47.8bn at the same point last year.

Public sector net debt for September was £1,627.2bn, an increase of £39.5bn compared with September 2015.

Local government borrowing, meanwhile, was at £1.7bn, compared to £1.4bn in September 2015. This was a smaller increase than central government borrowing, which increased from £8.6bn to £9.9bn.

Local government net borrowing for the financial year-to-date was estimated to be zero, a decrease from the £2.3bn net surplus at the same point last year. The ONS said this was because grants from central government to local government had reduced.

In this financial year, just 10% of total government funding to local authorities is being paid in April, lower than the percentage in previous years, and the overall amount is also lower. However, this was partially offset by an increase in tax receipts and a decrease in expenditure on services.

Councils including Wolverhampton and Manchester recently published plans to cut large numbers of jobs and services in an effort to balance their budgets.

Local authorities have also warned that plans to fully devolve business rates by 2020 could lead to a loss in income for councils in more deprived areas.

Philip Hammond, the chancellor, said: “We have already made significant progress in bringing the public finances under control, reducing the deficit by almost two-thirds since 2010, but our debt and deficit remain too high.

“We remain committed to fiscal discipline and will return the budget to balance over a sensible period of time, in a way that allows us the space to support the economy as needed.”

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