Osborne on Course to Miss Borrowing Target as Deficit Climbs

By Andrew Atkinson  

Photographer: Simon Dawson/Bloomberg

Chancellor of the Exchequer George Osborne had been predicting about 7 percent more... Read More

Britain’s budget deficit widened in the first six months of the fiscal year, leaving Chancellor of the Exchequer George Osborne on course to overshoot his borrowing target.
Net borrowing excluding public-sector banks was 58 billion pounds ($94 billion) between April and September compared with 52.6 billion pounds a year earlier, the Office for National Statistics said today. In September alone, the deficit was 11.8 billion pounds, more than the 10.1 billion pounds economist forecast in a Bloomberg survey and up from 10.3 billion pounds a year earlier. Tax income rose 3.1 percent and spending gained 3.7 percent.
In March, government forecasters predicted the budget deficit would shrink by about 12 billion pounds in the current fiscal year. The underperformance so far
largely reflects smaller-than-expected income-tax receipts, as many of the jobs being created are at the lower end of the wage scale and attract little tax.
Together, taxes on income and national-insurance contributions, a social-security levy, account for almost half of government revenue. Osborne had been predicting about 7 percent more income tax this year. Between April and September, it rose just 0.1 percent, while NICs increased 1 percent.
While the weakness partly reflects bonus payments being shifted into the 2013-14 fiscal year to take advantage of a cut in the top tax rate, an expected influx of self-assessment income due in early 2015 may not be enough for the government to meet its targets, according to the Institute for Fiscal Studies in London.

Property Boost

The ONS last month changed the way it calculates the public public finances. Figures produced on an unrevised basis, which exclude payments of gilt coupon income from the Bank of England and the effect of temporary financial interventions, show the deficit was 12.6 billion pounds in September compared with 11 billion pounds a year earlier.
Cash gauges of the public finances aren’t affected by the changes announced last month. The measure the Treasury uses to calculate how much it needs to borrow in the financial markets showed a deficit of 21.7 billion pounds last month. Net debt climbed to 1.45 trillion pounds, or almost 80 percent of gross domestic product.
While income tax is lagging behind forecasts, the government is being helped by Britain’s buoyant property market. Stamp duty on home purchases totaled 5.9 billion pounds in the fiscal first half, up 1.5 billion pounds from a year earlier.
In a statement, the Treasury highlighted the risks from the slowdown in the euro area and said today’s borrowing figures underlined the need to “continue working through the plan that is building a resilient British economy.”