UK budget deficit unexpectedly narrows in boost for Hammond

LONDON: The UK budget deficit unexpectedly narrowed in August as spending fell and the government recorded healthy receipts of value-added tax (VAT), stamp duty and national-insurance contributions.

The shortfall was £5.7bil (US$7.7bil) compared with £6.9bil a year earlier, the Office for National Statistics said. It left the deficit in the first five months of the fiscal year at £28.3bil, down 0.7% on the year.

The figures are a boost for Chancellor of the Exchequer Philip Hammond as he attempts to stick to budget-cutting strategy in the face of demands to lift public-sector pay after years of austerity.

Special factors are expected to push up borrowing in 2017-2018 as a whole but there is a growing consensus that the deficit will come in below the £58bil predicted by the Office for Budget Responsibility in March.

Revenue rose 3.5% last month, with VAT climbing 5.6% to its highest level for any August on record despite the squeeze on household incomes from soaring import prices. Stamp duty on property purchases jumped 18% and NICs, a social-security levy, jumped 5.8%.

Self-assessed income tax receipts were adversely affected by timing issues. July 31, the deadline for so-called payments on account, fell on a Sunday in 2016, meaning revenue came in during the following month instead.

As a result, self-assessed receipts fell at an annual rate of 22% last month, though combined income in July and August was the highest for the months on record at £9.4bil.

On the spending side, day-to-day expendi- ture fell 0.6%, helping to offset an increase in capital investment. While debt payments fell, they are running 17% higher in the fiscal year so far as result of higher inflation pushing up the cost of servicing index-linked government bonds.

The deficit has fallen from 10% of GDP in the aftermath of the financial crisis to 2.3% last year, and Hammond is pledging to balance the books by 2025.

But any shock to the economy from Britain leaving the EU could blow his fiscal plans off course. — Bloomberg