Latest Public Sector News

22.10.15

 ‘Uncertain’ council borrowing hits £1.6bn, but improves in September

Public sector net borrowing has decreased by nearly 14% so far in this financial year compared with the same period in 2014, figures from the Office of National Statistics (ONS) have shown.

But while this was predominantly driven by a decrease of nearly £9bn in Whitehall borrowing, it was offset by an increase of £1.6bn in local government borrowing.

Figures for the first six months of the financial year starkly contrast with the Office for Budget Responsibility’s (OBR’s) July forecast, where it had predicted local government borrowing would drop by £0.7bn in 2015-16.

Commenting on the rise of council borrowing, the OBR said: “Provisional local authorities’ estimates are often subject to significant revision, but this clearly represents a source of considerable uncertainty for our November forecast.”

The decrease in central government borrowing was mostly caused by an increase in receipts, including collecting more income tax-related payments, VAT receipt, national insurance contributions and corporation tax.

Meanwhile, in September only, local government borrowing decreased by £0.2bn due to less expenditure on services, and total public sector borrowing dropped by 14.3% compared with September 2014 – the smallest September deficit in eight years.

John Hawksworth, chief economist at PwC, expected that the chancellor would be satisfied with these figures especially given the unprecedented rise in council borrowing just a month earlier.

But while he recognised that the September swing brought the government closer to meeting the OBR’s forecast for borrowing in 2015-16, the deficit was still “uncomfortably high” – meaning public organisations should not expect any relaxation of planned cuts in the Spending Review.

Chancellor George Osborne’s reaction to the figures was very much in line with this.

He said the figures proved the government’s “hard choices are paying off”, but admitted: “It also shows the work that is still to be done. We have record employment, strong growth and rising wages. Yet we borrowed £9.4bn this September, since government spending is still unsustainably high.

“That’s why we have to continue the hard work of identifying savings and making reforms necessary to build a resilient economy, which is what we’ll do at the upcoming Spending Review.”

Across the public sector, if borrowing continues to fall at this same rate, the deficit would still be around £5bn over the OBR’s £69.1bn forecast for the full financial year.

Commenting on this, TUC general secretary, Frances O’Grady, said: “The chancellor is borrowing at four times the rate he planned to this year, because his deficit reduction strategy has failed.

“Instead of clearing the deficit, severe public spending cuts have slowed down the recovery and held back wage growth, leaving income tax revenues and national insurance receipts much lower than expected.

“The chancellor is in danger of repeating the mistakes of the last parliament with further public spending cuts that put the recovery at risk. This would damage the tax base and leave the public finances in a mess for even longer.”

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