Blow to Osborne as deficit grows

Published: Tuesday 21st October 2014 by The News Editor

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George Osborne suffered a fresh blow today as the six-year squeeze on earnings growth was blamed for the latest official figures showing a widening hole in the public finances.

The data from the Office for National Statistics (ONS) showed revenues from income and wealth taxes failed to grow compared to the same month last year.

They showed borrowing for the month, excluding the effects of bank bail-outs, was £11.8 billion, which was 15.3%, or £1.6 billion, ahead of September last year.

It means that halfway through the financial year, the Treasury looks well behind the target for a 12% fall in the annual deficit expected by the independent Office for Budget Responsibility (OBR).

Borrowing for April to September stands at £58 billion, 10% higher than for the same period in 2013/14.

Taxes on income and wealth for September of £13.1 billion were flat on the same month last year and just 0.6% ahead for the year to date.

Within this, revenues from income tax and capital gains tax rose 2.2% for the month and 0.1% for the year to date.

OBR chairman Robert Chote has warned that the squeeze on pay growth is hitting the Government’s revenues from income tax despite record numbers in work.

Annual pay growth has been lagging behind inflation since 2008 and latest official figures showed it was just 0.7%.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The Government’s current fiscal problems largely reflect the fact that much weaker-than-expected earnings growth has limited income tax receipts, along with a large number of people now being in low-paid jobs or self-employed.

“The Chancellor is looking ever more unlikely to meet his fiscal targets for 2014/15.”

The ONS figures suggested that the buoyant property market was continuing to have a positive effect on public finances.

Stamp duty on land and property continued to boost the Government’s coffers, rising to £1.1 billion for September, matching a high in July that was a seven-year record.

Revenues from this were up £1.5 billion, or 34%, to £5.9 billion for the April to September period.

Total receipts were 3.1% ahead to £46 billion, though for the year to date they are 0.4% behind at £287.1 billion.

Spending for September rose by 3.7% from £51.1 billion to £53 billion.

Underlying public sector debt was £1.451 trillion, or 79.9% of gross domestic product (GDP), compared to 79.2% last month and 77.9% in September last year.

Samuel Tombs of Capital Economics said: “The continued run of poor UK public borrowing figures looks set to severely hamper the Chancellor’s ability to announce giveaways to address his party’s deficit in the national opinion polls before next year’s general election.”

Shadow chief secretary to the Treasury Chris Leslie said: “These figures are a serious blow to George Osborne.

“Not only is he set to break his promise to balance the books by next year, but borrowing in the first half of this year is now 10% higher than the same period last year.

“As the OBR said last week, stagnating wages and too many people in low-paid jobs are leading to more borrowing.”

A Treasury spokesman said: “We have seen stronger growth in receipts this month, but as today’s figures show, the impact of the great recession is still being felt in our economy and the public finances.

“At the same time, we have to recognise that the UK is not immune to the problems being experienced in Europe and other parts of the world economy.”

Sumita Shah, public sector policy manager at accountancy body ICAEW, said: “These figures make grim reading for the Chancellor. Our economic recovery has, on the face of it, been progressing this year, but the underlying debt and deficit figures tell a different story.

“We are paying a colossal amount of interest per year, a sum larger than it costs to run a number of individual government departments. UK debt is now 79.9% of GDP, and is getting close to being unsustainable at a time when we already expect economic growth to slow down in 2015.”

Alan Clarke, of Scotiabank, said: “Six months into the fiscal year and all six months have shown a deterioration in borrowing compared with the same month a year ago.

“If this trend continues, then full-year borrowing will be £108 billion – about £10 billion worse than forecast in the Budget.

“If the majority of the increase in employment has been among low-paid workers, and the starting rate of income tax has been raised to £10,000, then don’t be surprised if income tax receipts don’t rise that fast.”

Published: Tuesday 21st October 2014 by The News Editor

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