Spending boost at risk from weak finances

BORIS Johnson’s plans to cut taxes and increase spending have been questioned after a smaller-thanexpected budget surplus in July.

The Government’s finances are in a weaker position than analysts expected for the first four months of the financial year, chiefly due to increased spending.

Experts were predicting July’s budget surplus would fall to £2.7bn, from £3.6bn last year, but it was even lower, at just £1.3bn.

Surpluses – where the country earns more from taxes than it spends – are common in July because of a deadline for completing self-assessment returns.

The country has now borrowed £16bn from April to July, up 60pc on last year, according to the Office for National Statistics.

Experts blamed the deterioration on a growing public sector wage bill and higher spending on goods and services.

EY Item Club’s Howard Archer said Britain is now on course to borrow £37.8bn in this financial year – substantially more than the £29.3bn forecast by the Office for Budget Responsibility.

A change in accounting for taxpayer-funded student loans will push up borrowing by another £11bn, Archer said.

It will hike pressure on Johnson and Chancellor Sajid Javid over plans to boost public spending.

However, analysts believe the figures will not be enough to force a change of heart.

Capital Economics’ Thomas Pugh said: ‘We doubt this will prevent the Chancellor from loosening fiscal policy in a one-year spending review in September or in an autumn budget, either before or after Brexit.’

Public sector net debt stood at £1.8 trillion at the end of July. ÷ BARCLAYS Research has predicted the UK would fall into a recession if we leave the European Union without a deal.

It now believes a No Deal Brexit is the most likely outcome and expects an economic slowdown would take hold after a couple of months, with Britain entering recession in 2020.