The Office for National Statistics said there was a surplus of £1.3bn last month for the public sector, excluding the financial impact of state-controlled banks. That was in line with City expectations and compared with a small deficit of £100m in July last year.
It was the first time since 2012 that government receipts exceeded outgoings in July. The continued improvement in the public finances last month left Chancellor George Osborne on track to meet a forecast for a smaller deficit this financial year, made by the fiscal watchdog, the Office for Budget Responsibility (OBR).
“[Friday’s] data confirmed the improving trend in the public finances and suggests that the government could be on track to reduce the budget deficit this year by somewhat more than the OBR forecast in July,” said John Hawksworth, chief economist at consultancy PwC.
Against the backdrop of a pick-up in employment and earnings this year, there was a boost to the public coffers from income tax receipts in July.
The ONS said income tax receipts of £18.5bn were the strongest for a July since records began in 1997 and compared with £17.6bn a year earlier.
Public finances traditionally record a surplus in July, but tepid wage growth in the previous two years has depressed the usual surge in payments from individuals filing self-assessed income tax returns.
The figures were welcomed by Osborne, who has pledged to cut and eventually eliminate the deficit – the gap between government spending and income – in order to bring down Britain’s stock of outstanding debt.
That stood at £1.5tn in July, equivalent to 80.8% of GDP, and was £73bn higher than a year earlier. The chancellor said the latest figures were testimony to the economic recovery but that the government would continue to work on cutting Britain’s deficit.
“With debt over 80% of GDP the job is not done,” he said.
For the financial year so far the deficit was £24bn, down £7.3bn, or 23%, from the same April to July period a year ago. Osborne said in his summer budget last month that he wanted to bring down the deficit for the whole of this financial year and the OBR has forecast it will come in at £69.5bn.
Samuel Tombs, senior UK economist at the consultancy Capital Economics, said it was too early in the financial year to conclude that “the second phase of the fiscal squeeze is going to plan. There are eight months of the fiscal year to go and revisions to estimates of borrowing in the early months of the year are often large.
Accordingly, it is too soon to conclude that the chancellor is meeting his fiscal plans with room to spare and could therefore reduce the scale of the austerity measures set to hit the economy,” he said.
David Kern, chief economist at the British Chambers of Commerce, said Osborne could beat his deficit target for this year. But Kern was cautious about the longer-term and Britain’s struggle to shake off the legacy of the financial crisis.
“The ability of Britain’s banking sector to generate profits and tax receipts was hit hard during the recession, and together with much lower oil and gas receipts means that the country’s ability to generate tax revenue is seriously reduced,” Kern said.
“The progress made this year in cutting the deficit provides the chancellor with greater flexibility, which will enable him to put more emphasis on ways to boost economic growth. This must include investing in infrastructure and boosting exports.”
theguardian.com
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