Brexit blamed for sharp rise in public borrowing
Public finances deteriorated markedly in September, as an increase in Government spending outstripped disappointingly weak growth in tax revenues.
Public sector borrowing in the month came in at £10.6bn, up from £9.3bn in the same month last year, according to the Office for National Statistics. City of London analysts had expected borrowing to decline to £8.5bn.
Some analysts said the weakness was likely to reflect the adverse economic effect of the European Union
referendum result.
"While the economy has shown overall resilience following June’s Brexit vote, there clearly has been some slowdown in activity which is impacting on tax receipts," said Howard Archer of IHS Global Insight. "This is perhaps the first sign that the Brexit vote is already starting to have an impact on the public finances," said Paul Hollingsworth of Capital Economics.
The reports leaves the Government even further adrift from meeting the 2016/17 deficit reduction target sketched out by the Office for Budget Responsibility in the March Budget and analysts warn a slowdown in the economy in the wake of the referendum vote was likely to cause an additional deterioration.
"Borrowing will total £72.4bn this fiscal year, overshooting the OBR’s forecast by nearly £17bn, if the trend in the first half of this year persists," said Samuel Tombs of Pantheon,
Tax receipts were up 2.6 per cent in September year on year, while spending rose by 3.5 per cent.
Tax receipts for the fiscal year to date are up 3.6 per cent on 2015/16. In March the OBR had projected 6.1 per cent growth, indicating that the economy is growing more weakly than expected. In the financial year to date the Government has already borrowed £45.8bn, versus £50.1bn at this stage in 2015/16. In March the OBR projected full year borrowing of £55.5bn, giving around £10bn of leeway with six months to go.
The ONS highlighted weak growth in corporation tax revenues in September, which came in at just £2.3bn, versus £2.5bn in the same month a year earlier. VAT receipts also disappointed, rising by just 1.4 per cent year on year versus the OBR's March forecast of a 3.3 per cent full year increase.
Responding to the figures the Chancellor, Philip Hammond, said: “We have already made significant
progress in bringing the public finances under control, reducing the deficit by almost two thirds since 2010, but our debt and deficit remain too high. We remain committed to fiscal discipline and will return the budget to balance over a sensible period of time, in a way that allows us the space to support the economy as needed."
Mr Hammond will unveil the OBR's updated public borrowing forecasts in the Autumn Statement on 23 November, where he is also expected to announce a discretionary increase in public infrastructure spending to help stabilise the economy in the wake of the Brexit vote.
The Chancellor has already announced that the Government will no longer target an absolute budget surplus by 2019/20, which was the central goal of his predecessor George Osborne.