News

Council borrowing up by more than £2bn

Public sector borrowing in August was £12.1bn, which was £1.4bn more than a year earlier, mostly because local authorities borrowed more than initially expected.

Market economists had expected a drop in borrowing to £9bn, so were surprised at the figures, released by the Office for National Statistics (ONS) yesterday.

In its analysis of the figures, the Office for Budget Responsibility (OBR) said that, to meet the July Budget forecast of £69.5bn borrowing in 2015-16, there must be a £20.6bn reduction in borrowing throughout the financial year.

However a spike in borrowing in August and upward revisions to borrowing, especially from councils, between April and July slowed down improvement – with the year-to-date borrowing over the first five months of the financial year now only £4.4bn lower than the same period in 2014-15.

Its analysis report said: “There is some evidence that local authority borrowing could be higher than assumed in the July [Economic and Fiscal Outlook], given the latest Department for Communities and Local Government information on local authority current spending. We will be looking at this carefully in our next forecast.

“Other elements, such as the growth in central government receipts, are close to their full-year forecast.”

It added the revisions to this month’s release increased the public sector borrowing figure by £2.2bn in the first four months of 2015-16.

“An upward revision of £2.4bn in local authority borrowing more than explains the change. Central government spending was revised up by £0.9bn, largely reflecting higher spending by the Department of Health and the NHS than previously assumed,” the report added.

But the ONS blamed the rise in borrowing on a 3.5% fall in income tax paid during August compared to the same period last year, despite reiterating that monthly figures are “volatile”.

Public sector debt also increased by almost 4.8% compared to August 2014, now standing at £1,505bn, largely due to borrowing.

A Treasury spokesperson said: “We have more than halved the deficit but there’s more to do with debt remaining higher than 80% of GDP.”

But Vicky Redwood, from Capital Economics, said the figures brought the “recent run of good news on the public finances to an abrupt end” as the £12.1bn net borrowing was “significantly higher” than the consensus forecast of £9.2bn.

“That said, hopefully this will just be a temporary blip, as tax receipts should be feeling the benefits of the recent strength of the economic recovery,” she said.

And Ross Campbell, director for public sector policy at the Institute of Chartered Accountants in England and Wales, said the figures indicated “slow progress” by the government to reduce the budget deficit.

He added: “Despite it being £4.4bn less this financial year than the same timeframe last year, the deficit last month increased by £1.4bn compared with August 2014, and is higher than markets expected. Sorting our public finances depends on robust tax receipts, so it is disappointing to see corporation and income tax revenues decrease.

“The weakening global economy could also have a significant impact on tax receipts in the coming months, which would only make the situation worse.

“The Spending Review in November is looking at expenditure, but it must also take into account what income can be recouped, or we risk turning deficit reduction into a three-Parliament problem.”

Investec’s chief economist, Philip Shaw, also noted that if public finances remain on this course, the deficit will fall to £79bn this year, missing Summer Budget forecasts by £10bn.