UK public borrowing delivers 'freak' surplus for July
UK public sector borrowing produced a first surplus in July for 15 years thanks to a one-off jump in self-assessment tax receipts.
Public sector net borrowing excluding government stakes in banking groups moved to a £0.18bn surplus compared to a deficit of £0.31bn in July last year and a consensus forecast for a £1.0bn deficit.
This follows a deficit the previous month that was revised to £6.2bn deficit from a previously reported £6.9bn.
The first July surplus since 2002 came as self-assessment receipts were boosted by the 31 July deadline falling on a Monday this year but on a weekend in 2016, which meant some payments were pushed back into August to make July 2016 unusually low.
Government borrowing in the financial year-to-date has totalled £22.8bn, 9% more than in the same months of the previous tax year, and the Office for Budget Responsibility forecasts that it will grow to £58.3bn for the year to March 2018.
Public sector net debt excluding stakes in bailed out banks was £1.76trn at the end of July, equivalent to 87.5% of gross domestic product and up by £143.9bn or 4.5 percentage points as a ratio of GDP over the past 12 months.
Interest payments to service the debt were significantly higher due to inflation, with interest payments up 18% to £4.9bn.
The first July surplus since 2002 was certainly "not a signal that the economy is in rude health", said economist Samuel Tombs at Pantheon Macroeconomics, pointing out that the improvement compared to a year ago primarily reflects a £0.8bn jump in self-assessment tax receipts from the 2016/17 tax year.
"Total central government tax receipts, including SA payments, rose by just 3.4% year-over-year in July, the slowest growth since March 2016," he said, noting that PAYE income tax receipts were up just 1.6% year-over-year in July, despite strong employment growth, suggesting that wage growth has remained weak recently.
"Public sector spending restraint—central government current expenditure rose by just 1.6% year-over-year, despite surging interest payments—ensured that a surplus was generated in July even though tax receipt growth was weak."
Tombs said growth in receipts will slow sharply at the end of this fiscal year, because the bumper batch of self-assessment receipts collected in January and February 2017, due to prior tax changes, will not be repeated.
"The OBR also likely will revise down its very optimistic forecasts for wage growth in the Autumn Budget, boosting the borrowing forecast in future years. As such, we continue to doubt that the Chancellor will pare back the fiscal consolidation planned for the coming years," he said, noting that if this trend continues borrowing will be well below the OBR’s Budget forecast of £58bn at about £49bn.
Ruth Gregory at Capital Economics said the surplus "will probably prove to be just a temporary blip" and also recommended not getting too carried away by the OBR borrowing figures for the first few months of the fiscal year "as they are based on a significant amount of forecast data".
With cumulative borrowing in the first four months of the fiscal year still some 9% higher than the £20.9bn seen last year and the OBR expecting a further deterioration later in the fiscal year, "despite July’s strength the Chancellor may still find that he has little scope for any easing back on the planned fiscal squeeze in his November Budget".
At least one economist saw it as a boost for the Chancellor, though.
Howard Archer, chief economic advisor to the EY ITEM Club, saw a hat-trick of good news, noting a marginal surplus was combined with June’s shortfall being revised down and that the 2016/17 budget shortfall was trimmed again to £45.1bn from £46.2bn.
Archer said the modest year-on-year dip in corporation tax receipts in July was influenced by the OBR smoothing out revenues over the year.
"While a struggling economy and higher interest debt payments look likely to weigh down on the public finances over the coming months, there’s a good chance that the Chancellor will have a little wiggle room in November’s Budget," he said.
"Rising dissatisfaction with austerity and the public sector pay cap is exerting pressure on the government to recalibrate fiscal policy in November’s Budget. However, it currently seems most likely that there will be limited adjustments to the fiscal approach rather than radical policy changes.
"While the Chancellor has indicated that he has taken on board the views of the electorate, he has stated that he remains committed to the fiscal rules set out at the Autumn Statement which lead to a balanced budget by mid-2020's."