Boost for Osborne ahead of July budget

Chancellor George Osborne yesterday received a boost ahead of his emergency summer budget as official figures showed a better-than-expected improvement in the UK’s public finances.

Borrowing — excluding the effect of bank bailouts — was £6.8bn (€9.6bn) in April, £2.5bn lower than in the same month last year, according to the Office for National Statistics.

Public finances were bolstered by bumper Vat receipts as well as spending cuts.

It was the first set of monthly borrowing figures for the 2015/16 fiscal year as Mr Osborne targets a further reduction in the annual deficit. The chancellor is to deliver his first all-Tory budget, following the party’s election victory, on July 8.

Martin Beck, senior economic adviser to the EY ITEM Club, said: “As it stands, it is not implausible that the budget on July 8 will see a cut in the deficit forecast.

“This would certainly make life easier for the chancellor in juggling his ambitions to achieve a budget surplus by the end of the parliament, while meeting the various tax and spending commitments made during the election campaign.

“All in all, it is looking like the most favourable backdrop to a budget since 2007.”

Yesterday’s figures showing a year-on-year fall of 27% in monthly borrowing was comfortably ahead of the 14% pencilled in for the financial year ahead by the Office for Budget Responsibility.

That office sees borrowing reduced to £75.3bn for 2015/16. Revised figures show it was £87.7bn in 2014/15, slightly higher than the initial estimate of £87.3bn though still undershooting its target.

April’s figures were helped by Vat receipts of £10.6bn, up 3.4% year on year and the highest figure for April since records began in 1997.

Meanwhile, debt interest payments for the month were 7%, or £400m, lower as the cost of servicing inflation-linked bond debt fell, with inflation at record lows.

Income tax-related receipts rose 3.7% to £11.6bn while spending on net social benefits fell 1.1% to £16.7bn. An expenditure category mainly including departmental spending was 10%, or £4.1bn, lower at £36.8bn.

Underlying debt at £1.488 trillion was up from £1.484 trillion in March but as a proportion of GDP was flat at 80.4%. In April last year the debt was £1.404 trillion, or 78.9% of GDP.

Samuel Tombs of Capital Economics said the figures were “more good news on the current health of the UK’s public finances”.

However, he added: “A major and painful re-intensification of the fiscal squeeze will still be required for the government to obtain an overall budget surplus in this parliament.

“It is highly unlikely that this pace of spending cuts can be maintained in future months. Accordingly, the chancellor is unlikely to have spare funds to dispense at the summer budget.”