Slower growth leaves Osborne struggling to hit borrowing target

GEORGE OSBORNE will struggle to meet his borrowing target this year despite banking the biggest January surplus since before the financial crisis.

He warned that Britain faced “challenges for future tax receipts” against a backdrop of slower growth.

Government income exceeded spending by £11.2bn in January. Receipts from income tax payments climbed 6.5pc to £30.3bn.

This was the highest surplus recorded since January 2008, and £1bn higher than the same month a year ago, according to the Office for National Statistics. However, economists had expected a larger surplus of £12.3bn.

January’s data are the final set of figures before the Chancellor presents his Budget on March 16, and takes borrowing so far this financial year to £66.5bn. While this is below the Office for Budg- et Responsibility’s forecast of £73.5bn for the fiscal year as a whole, the budget deficit will need to come in at £7bn or less in February and March to avoid overshooting the full-year target.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, highlighted that this had not been achieved since 2003-04. Last year, the Government borrowed £14.8bn.

Mr Osborne said there was “no shortcut to fixing the public finances”. He added “we cannot be complacent in thinking the job is done” in light of a weaker outlook for the economy.

January is traditionally the biggest month of the year for tax receipts, as payments of self-assessed income tax flood in. The ONS said VAT receipts increased by £0.3bn, or 2.7pc. However, corporation tax fell 7.8pc to £7.7bn.

Economists highlighted that a combination of lower debt interest payments due to falling gilt yields and expectations that businesses will avoid April’s increases in dividend taxation will boost the public finances.

Mr Tombs said poor borrowing figures mean Mr Osborne “has no spare cash to dole out in the Budget”.

The OBR said “considerable uncertainty” remained over prospects for the final two months of the financial year.

Britain’s debt-to-GDP ratio also fell for the first time since September 2002, helped by a wave of asset sales. Net debt, excluding public sector banks, fell to 82.8pc of GDP in January, from 82.9pc a year earlier.

However, the ONS and OBR said the figures should be treated with caution as GDP data are based on forecasts in the Autumn Statement.