Osborne set to miss deficit target

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Published: Friday 21st November 2014 by The News Editor

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Britain’s beleaguered public finances caused George Osborne a fresh headache today as new figures left him on course to miss his deficit reduction target and offered limited scope for giveaways in his Autumn Statement.

Despite the economic recovery and jobs boom, Treasury revenues have been weaker than expected in the fiscal year to date, partly due to disappointing income tax take and the cooling housing market weighing on stamp duties.

Government borrowing – excluding the effect of bank bail-outs – fell £200 million to £7.7 billion in October but for the April-October period it was £3.7 billion or 6.1% larger than at the same stage last year.

It leaves the Chancellor looking increasingly unlikely to meet the 12% cut in the annual deficit for 2014/15 pencilled in by the independent Office for Budget Responsibility (OBR).

Today’s monthly figures from the Office for National Statistics (ONS) are the last before the Chancellor delivers his Autumn Statement on December 3. It will be accompanied by the latest updated forecasts from the OBR.

Following the data release, the OBR said higher borrowing so far this year reflected the fact that the growth in central government receipts had been much weaker than forecast at the time of the Budget.

It said: “Factors such as weaker-than-expected wage growth, lower-than-expected residential property transactions and lower oil and gas revenues make it unlikely that the full-year receipts growth forecast from March will be met.”

The disappointing performance of public sector finances, despite economic growth running at around 3% and record numbers in employment, is partly the result of disappointing income tax receipts.

This so-called “taxless recovery” is blamed on the proportion of new jobs which are low-paid or part-time, meaning a large portion of the new wages generated do not meet the £10,000 threshold for paying tax.

October’s data showed receipts from income tax and capital gains tax up just 1.5% on the same month last year and 0.4% lower on the year to date.

This month’s figures also showed that the cooling in the housing market boom, which had been boosting stamp duty income, was having an effect, with the slowest year-on-year growth in these revenues for 17 months.

Stamp duties from land and property grew by about £100 million in October, an increase of 4% compared with 29% for the fiscal year to date.

It was the smallest improvement since March 2013 – before Government initiatives such as the Funding for Lending scheme and Help to Buy boosted the market.

The UK’s underlying debt was £1.449 trillion, a fall on the month before but higher when compared with the £1.352 trillion in October last year. It now represents 79.5% of gross domestic product.

City analyst Louise Cooper said: “This makes any Christmas giveaways in the Chancellor’s Autumn Statement on December 3 difficult.”

PwC chief economist John Hawksworth said: “The public finances remain a headache for the Chancellor. Income tax receipts remain weak.

“Part of this reflects changes in the timing of bonus payments, but there is also an underlying shortfall related to continued subdued average earnings growth.

“With personal allowances having risen significantly in recent years, many of the people getting back into work have just not been earning enough to pay much, if any, income tax.

“From the point of the view of the Exchequer, this has been the ‘wrong sort of growth’.”

He said the borrowing for 2014/15 as a whole looked likely to overshoot OBR targets by £5 billion-£10 billion – even allowing for some catch-up in January due to an expected bumper set of self-assessment tax receipts, due to the timing of tax changes.

Samuel Tombs, of Capital Economics, said: “The latest public borrowing figures showed that the economic recovery is still doing little to heal the public finances and so undermined the view that the books can be balanced through spending cuts alone.

“In order for borrowing to be 12% lower this year, as set out in the Budget, it would have to be a whopping £15 billion or 40% lower than last year in the last five months of the fiscal year. A reduction of this scale now looks impossible to achieve.”

Shadow chief secretary to the Treasury Chris Leslie described the figures as a “damaging setback” for the Chancellor.

He added: “George Osborne’s promise to balance the books by next year lies in tatters. As the OBR has said, stagnating wages and too many people in low-paid jobs are leading to more borrowing.”

A Treasury spokesman said: “While today’s public finance figures show borrowing is down this month compared to last year, 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. That’s why we will continue working through the plan that is building a resilient British economy.”

Published: Friday 21st November 2014 by The News Editor

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