Rising tax revenue sends Government borrowing to an 11-year low

THE amount of money the Government has to borrow to make up for a shortfall in its budget has fallen to its lowest level since 2007 and is a quarter lower than it was a year ago, thanks to the country spending less and generating more income from taxes.

If this trend continues over the next few months, it could offer Philip Hammond, the Chancellor, room to increase spending in the autumn Budget, experts have said.

So far this financial year, which runs from April 2018 to March 2019, the Government has had to borrow £16.8bn to keep the country running, the Office for National Statistics said yesterday. This is £5.4bn less than in the same period last year – equal to a cut of 24pc – and the lowest level of borrowing, in this particular three-month period, in more than a decade.

Government borrowed £19.4bn in the April to June period, while local government was in surplus by £2.9bn.

Andrew Wishart, an economist at Capital Economics, said the figures were well below forecasts from the Office for Budget Responsibility (OBR), which produces official government forecasts. He said it was encouraging that tax revenues had held up well. “It’s early days yet, but if sustained, the fall in the deficit would see the borrowing numbers undershoot the OBR’S forecast for the full financial year by £7bn or so,” he said. “The upshot is that the OBR should allow the Chancellor a bit more room for manoeuvre.”

The decline in borrowing was driven by two things: a 3pc increase to £169.4bn in the amount of money government raised from taxes and other revenue-generating means; and a 1pc fall in spending to £184.2bn.

It tends to spend just below two thirds of its budget on government departments; around one third on social benefits, and the rest on capital investment and interest on debt.

The debt pile at the end of June stood at £1.8 trillion, which equated to 85.2pc of GDP. While this is £33bn higher than it was at the same time last year, the debt shrunk as a ratio of GDP.

This year, the OBR expects the public sector to borrow £37.1bn. This would account for one quarter of what it borrowed at the peak of the financial crisis in March 2010.

Samuel Tombs, of Pantheon Economics, said: “The Chancellor should be able to give the economy a break from further spending cuts in 2019.”