Hammond’s Budget boost from £13bn fall in deficit

PHILIP Hammond looks set to be handed a Budget windfall of £13billion after bumper VAT receipts drove borrowing down to a ten-year low.

The Government borrowed £5.7billion last month, the smallest shortfall for any August since 2007 and down 18 per cent on the previous year, according to the Office for national Statistics.

Experts said the Chancellor was now on course to borrow around £45billion this year – far less than the £58billion predicted by the Office for Budget Responsibility in March. That would give him some wiggle room in the Budget in november to cut taxes, relax the public sector pay cap, or increase spending on areas such as the nHS and social care.

But the Treasury dampened expectations of major giveaways by warning that the national debt ‘was still too high’ at a record £1.8trillion – or £65,000 per household.

‘We must continue to live within our means and start reducing our debt,’ a Treasury spokesman said.

The OnS report showed the taxman collected £ 54.7billion last month – up 3.5 per cent on a year earlier – as the resilience of the UK economy following the Brexit vote boosted receipts.

Takings from VAT rose 5.6 per cent to a record £11.6billion in a sign that households are still splashing out despite rising prices and weak wage growth.

But the OnS said ‘the public sector spent more money that in received it taxes and other income’ once again last month – meaning it was forced to plug the gap with borrowing.

With five months of the tax year gone, the OnS said the government has borrowed £28.3billion, some £200m less than the previous year and the least since 2007.

A report by Capital Economics showed if borrowing continues at the same rate for the rest of the year ‘then borrowing would undershoot the OBR’s forecasts by £13billion’.

‘The Chancellor is likely to have some extra money to play with,’ said Paul Hollingsworth, UK economist at Capital Economics. ‘ As a result, some easing back on austerity to help households struggling in the face of the squeeze on real incomes looks likely. However, this won’t be the end of austerity, rather a slight relaxation in the pace.’

A Treasury spokesman said: ‘We have made substantial progress in reducing the deficit, whilst taking a balanced approach that allows us to invest in our infrastructure and public services. This approach is working but debt is still too high.’