The UK’s public finances got even worse in January after spending rose more than expected while tax revenues declined.
According to official figures from the Office of National Statistics (ONS) said the government borrowed another £4.3 billion last month whereas analysts had expected the government to repay about £2.8 billion of its debts.
"The public borrowing figures were disappointing after a couple of months where the budget deficit has come in lower than expected,” commented John Hawksworth, head of macroeconomics at PricewaterhouseCoopers LLP. “January is the peak month for tax revenues, but these were down by nearly 8% on a year earlier as the recession took its toll on income tax and capital gains tax receipts, despite the rise in the VAT rate on 1 January. Public spending also bounced back in January after being relatively low in December. Nonetheless, the outturn for 2009/10 as a whole could still come in at around £175 billion on our estimates, very close to the Treasury’s forecast.
"Even if the Treasury more or less hits its budget deficit forecast for 2009/10, however, this would still leave borrowing at a post-war record as a share of GDP. There is still a large structural deficit to be tackled and this is likely to require further tax rises and real spending cuts once the recovery is secure, over and above what has already been announced."
The cumulative deficit for April 2009-January 2010 was £122.4 billion as compared to £58.4 billion in the same period a year earlier. Extrapolating these figures forward suggests that the budget deficit for 2009/10 as a whole is likely to be around £175bn, close to the Treasury’s £178bn forecast.
Hawksworth said that the £122.4 billion budget deficit for the first ten months of the 2009/10 financial year reflects the fact that central government receipts were down by around 7.8% on a year earlier, with a particularly marked 13.9% fall in taxes on income and wealth (such as income tax, corporation tax and capital gains tax). Extrapolating forward and allowing for the effect of the VAT rise in February and March, we estimate that tax receipts could be around £2 billion below Treasury forecasts for 2009/10 as a whole;
In addition central government current spending was up by around 5.8% on a year earlier, which is actually somewhat slower than forecast by the Treasury for the year as a whole despite a relatively sharp rise in January after slow spending growth in December. For 2009/10 as a whole, PwC estimates that current spending could come in around £8 billion below Treasury forecasts if current trends continue.
Finally public sector net investment was up by around 42% on a year earlier, which is above Treasury forecasts and suggests an overshoot for 2009/10 as a whole of around £3 billion But Hawksworth thinks that this may not be a bad thing to the extent that it supports the economy through a difficult period during which private sector investment has been weak.
