Fall in borrowing gives Hammond a Budget breather

Chancellor receives more ‘wiggle room’ to fund extra £20bn for NHS as Britain’s balances rapidly improve

Anna Isaac

Helen Chandler-wilde

PUBLIC borrowing is on track to hit its lowest level in 16 years, leaving the Chancellor with the breathing space for additional spending in his forthcoming Budget.

The improvement in the public finances may make the Prime Minister’s promise of an extra £20bn for the NHS and an end to austerity more manageable for the Philip Hammond.

Borrowing in September this year stood at £4.1bn, nearly a billion less than the same month in 2017 and the best September figure since 2007, according to data from the Office for National Statistics. In the financial year to date borrowing fell by 35pc compared with the same period last year.

Should the trend continue, borrowing levels could significantly undershoot forecasts from the Office for Budget Responsibility (OBR), the Government’s spending watchdog.

According to Samuel Tombs of Pantheon Macroeconomics, the improvement in the country’s balance sheet has been more rapid than expected.

The Chancellor may also now be able to meet healthcare spending commitments without slashing other departmental budgets. They will still be reduced in real terms, but not “more aggressively”, Mr Tombs said.

Borrowing will total £25.9bn, or 1.2pc of GDP this year, if the present trend is maintained in the next six months of the financial year.

This would mean a “hefty £11.1bn less [in borrowing] than expected in the Spring statement”, Mr Tombs said.

The public debt at the end of September was at nearly £1.8 trillion, or 84.3pc of GDP. This was a 2.4-percentage-point fall compared with the same month a year earlier.

Stamp duty fell by 0.5pc, generating half a billion less for the Chancellor than the same period last year. This is likely to be a result of a softer housing market, which has triggered price falls for some of the UK’S most expensive homes, particularly in London.

By contrast, taxes on incomes and wealth brought the biggest increase in terms of returns for the Exchequer, rising by 6.1pc. This comes after official figures showed wage growth had hit a nine-year high of 3.1pc in the 12 months to August. However, economists do not expect the Chancellor to splurge in his Oct 29 Budget.

John Hawksworth of PWC said: “This borrowing undershoot should give the Chancellor a little extra wiggle room, but it will not be enough on its own to cover the cost of announced increases in spending on the NHS, let alone other priority areas where there is pressure to bring austerity to an end.”

Theresa May is more likely to await greater clarity on the UK’S future relationship with the EU post-brexit before allowing significant extra spending. Ambitious financial commitments are therefore likely to be made in the Spring statement.

The improved picture for the Government finances will still make it hard to meet promises to freeze fuel duty and increase NHS funding, while also eliminating the gap between spending and its tax haul.

Andrew Wishart of Capital Economics said this commitment combined with weak GDP forecasts from the OBR meant “that the Government will not be on track to deliver its aim of eliminating the deficit entirely by the mid2020s”.

The better-than-predicted borrowing figures have come as the profitability of UK firms has risen slightly. The rate of return for services companies, a measure of profits after expenditure, rose from 16.6pc in the three months to March to 17.2pc in the second quarter of the year.

£25.9bn The Government’s total borrowing this year, if the present trend is maintained, which represents 1.2pc of GDP