Surprise boost for UK public finances for December

L Government borrowing nearly halves last month l Figures helped by major credit from EU

Government borrowing fell unexpectedly last month after UK finances benefited from lower public spending, a big rebate from the EU and the strongest value-added tax receipts on record.

Public sector net borrowing, excluding state-owned banks, broadly halved to £2.6 billion in December from £5.1bn a year earlier, the Office for National Statistics said.

Economists had been expecting a public finances deficit for last month of between £5bn and £6bn. The performance was helped by a £1.2bn credit from the European Union, the ONS said, resulting in the lowest December net borrowing figure since 2000.

That rebate was the result of a smaller than expected EU budget in 2017, as well as updated economic forecasts that resulted in adjustments to member state contributions.

However, the rebate has already been accounted for by the UK’S Office for Budget Responsibility as part of its November forecasts.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the low public borrowing figure for December reflected “falling government spending, not a resurgent economy.

“Departmental spending fell by 3.1 per cent year-over-year, compared to an average rise of 1.9 per cent in the first eight months of 2017-18.”

Borrowing in the first nine months of the financial year fell almost 12 per cent to £50bn – a ten-year low.

Howard Archer, chief economic adviser for the EY ITEM Club, said that overall the borrowing figures would be “welcome news” for Chancellor Philip Hammond.

“If the pattern of the first nine months were repeated over the full fiscal year, 2017/18 public borrowing would come in at £40.6bn – which would be substantially below the downwardly revised shortfall of £49.9bn forecast by the Office for Budget Responsibility in November’s budget,” Archer said.

Responding to the ONS figures, the Treasury said: “We have made great progress in reducing the deficit by three quarters since 2010, but government debt is still far too high.”

Public spending has been in the spotlight following the collapse of outsourcing and construction giant Carillion earlier this month, prompting critics to call for a review of all outsourcing contracts and private finance initiatives.

Carillion held about 450 government contracts, accounting for approximately 38 per cent of the company’s 2016 revenues.