Government borrowing topped £10.4 billion in April

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The Government borrowed a surprise £10.4 billion last month in the last update on the public finances before the General Election.

The Office for National Statistics (ONS) said public sector net borrowing, excluding state-owned banks, rose by £1.2 billion in April to reach the highest amount borrowed for the month since 2014.

It came in higher than the expectations of economists who had pencilled in a smaller figure of £8.8 billion.

Martin Beck, senior economic adviser for think tank EY ITEM Club, said the new fiscal year has “began on a disappointing note for the public finances”.

He said: “The culprit for April’s weakness partly lay with tax receipts. Total central government revenues rose by 3.9% compared to 6.2% in March, the slowest rate of increase in 12 months. Meanwhile, income tax receipts were up by only 1.4%”

However, the statistics agency gave the Government a boost ahead of the election vote on June 8 by revising down last year’s deficit.

It said g overnment borrowing, excluding banks, for the financial year – April 2016 to March 2017 – dropped by £23.4 billion to £48.7 billion, in contrast to the same period last year.

It was the lowest annual borrowing figure since March 2008 and below the Office for Budget Responsibility’s (OBR) prediction of £51.7 billion.

The Government will face a stiff challenge to balance the books in the coming months as economists expect rising inflation to eat into consumer spending, causing the UK economy to slow.

Such a slowdown could have a damaging effect on the Government’s coffers, as it would recoup less VAT on goods if households tighten their belts.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said April’s borrowing figures suggest the drop in gross domestic product (GDP) to 0.3% growth in the first quarter “won’t be just a blip”.

He said: “Admittedly, the OBR expects borrowing to rise this year to £58.3 billion in 2017/18, from £51.7 billion in 2016/17 and it anticipates tax receipts rising only by 3.7%.

“But this forecast reflects the fact that the surge in self-assessment tax receipts in January and February 2017 will not be repeated this fiscal year.

“Tax receipts growth, therefore, would have to significantly exceed the OBR’s full-year forecast in the first few months of this fiscal year in order to suggest that the fiscal consolidation is on track.”

April’s borrowing jump was fuelled by a £3.5 billion rise in central government spending to £61.9 billion, with tax receipts lifting by £2.1 billion to £56.9 billion.

The ONS said VAT remained at £11.1 billion last month, the same level as April last year, while corporation tax rose by £300 million to £4.8 billion over the period.

On debt, the ONS said public sector net debt excluding state-owned banks climbed by £114.1 billion to £1,722.4 billion last month, equivalent to 86% of GDP.

Chancellor Philip Hammond had ditched his predecessor’s target of balancing the books by 2020, and vowed instead to put the public finances back in the black ”as early as possible” in the next parliament as part of a new Charter for Budget Responsibility.

However, Theresa May has pledged to deliver a balanced budget by the “middle of the next decade” if the Conservatives get back into power following the election.

Labour leader Jeremy Corbyn said his party would eliminate the deficit on day-to-day spending within five years and ensure debt is lower at the end of the next parliament but providing flexibility to borrow for investment.

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