LONDON: A sharp fall in Whitehall spending and lower interest bills on government debt helped narrow Britain’s public sector budget deficit in April.
A steady rise in tax receipts in the first month of the financial year also played a part following a record-breaking VAT haul, a bumper rise in corporation tax receipts and the rebound in stamp duty on property sales.
However, Whitehall budgets were flattered by a reduction in council funding that is likely to prove temporary, leading analysts to warn that achieving a balanced budget within five years would be difficult without further cuts in government spending.
There are many good reasons why the government offered a guarded welcome to the better than expected deficit for April
Samuel Tombs, senior UK economist at Capital Economics, said George Osborne would struggle to justify tax cuts in his July budget without a further attack on public services and welfare payments.
He said: “While April’s figures bring more good news on the current health of the UK’s public finances, a major and painful reintensification of the fiscal squeeze will still be required for the government to obtain an overall budget surplus in this parliament.
“It is highly unlikely that this pace of spending cuts can be maintained in future months.
“Accordingly, the chancellor is unlikely to have spare funds to dispense at the summer budget on 8 July, and any steps towards the Conservatives’ unfunded manifesto tax and spending commitments will require extra revenue-raising measures or deeper cuts to other departments’ budgets than already planned by the coalition.”
The Treasury said that the deficit, at just under 5%, is still one of the highest in the developed world. “There is no shortcut to fixing the public finances so we have to continue with the hard work of identifying savings and making reforms necessary to finish the job and build a resilient economy,” a spokeswoman said.
The Office for National Statistics said public sector net borrowing, excluding state-controlled banks, totalled £6.8bn in April, down nearly 27% from a year earlier and the lowest for that month since 2008.
The public coffers were swelled by the highest VAT haul for April since records began in the 1997-98 financial year, coupled with a jump in income tax receipts to £11.6bn and the highest corporation tax revenues for the month since 2008.
Only a mistake by the BBC, which failed to disclose an expected £200m from TV licence receipts, kept the average growth figure for tax receipts from breaking through the 3% barrier. A £200m reduction in receipts from the Bank of England’s APS scheme, which insures the Royal Bank of Scotland against losses on £250bn of its loan book, also helped reduce the average rise in tax receipts to 2.7%.
But the deficit mainly fell after a £4.7bn cut in Whitehall spending, including a one-off £4.3bn cut in local government grants, which was partly offset by a £1.9bn rise in capital spending.
A near 7% reduction in interest payments also helped squeeze the deficit as Britain’s ultra-low inflation reduced the government’s bill on inflation-linked bonds.
Osborne aims to wipe out the deficit by 2018-19 after failing to eliminate it by 2015, as was agreed by the Conservatives and Liberal Democrats at the outset of their coalition government in 2010.
