UK borrowing falls to lowest level since 2007 on tax windfall

UK GOVERNMENT borrowing was at its lowest level for a decade in 2017, partly as a result of a one-off tax windfall from changes to self-assessment income tax, according to official data.

The improved state of the public finances will come as welcome news to Philip Hammond, the Chancellor, following a November Budget that was overshadowed by GDP forecasts showing weaker than hoped-for growth, due to poor productivity levels.

Public borrowing was £48.1bn in the financial year so far, the lowest year-todate amount since 2007.

It fell by £3.1bn from April to November compared to the same period in 2016, data from the Office for National Statistics revealed. On a monthly basis, the Government borrowed £0.2bn less in November 2017 compared to the same month last year.

The OBR has forecast that public sector borrowing (excluding banks) will be £49.9bn when the financial year ends in March 2018. That would be an increase of £4.4bn in borrowing yearon-year.

Borrowing is unlikely to be significantly below this forecast, according to Ruth Gregory of Capital Economics.

“However, if we are right in thinking that the OBR is too gloomy about the prospects for GDP growth, then borrowing should come down at a faster rate than it expects further ahead,” Ms Gregory added. The better-than-expected borrowing figure of £8.7bn in November reflected solid growth in the amount of money gathered through taxes. Revenues were up 5pc in the month, compared to November 2016, as a result of strong growth in income tax receipts and VAT. This was due to “resilient” consumer spending levels, Ms Gregory said.

Victoria Clarke, of Investec, agreed that improved levels of tax revenue had helped cut public borrowing.

“One reason has been the robustness of the labour market where, despite a lack of a pick-up in pay growth, unemployment has slid to a 42-year low of 4.3pc,” she said.

Ms Clarke also noted that there appeared to be some positive progress on revenue generated from corporation tax – a useful indication of business activity. November’s figures were the best since May and “would have been a source of comfort” for Treasury officials, she said.

Admitting that overall public debt was still “too high” at £1.7 trillion, or 84.6pc of GDP, a Treasury spokesman said there was still “further to go” in improving the public finances.

If the pattern of the first eight months of the financial year were continued, public borrowing would come in at £42.8bn for the year ending March 2018, substantially below the shortfall of £49.9bn forecast by the OBR in November’s Budget, according to Howard Archer of EY Item Club.