Public sector borrowing improves in October – but not enough to get financial year back on track

Public sector net borrowing, excluding banks, has fallen by £200m year-on-year to £7.7bn in October – but it looks to be a case of too little too late when it comes to chancellor George Osborne's targets for the financial year. 

 

Figures published by the Office for National Statistics this morning showed that year-on-year borrowing had dropped 2.4 per cent. 

 

However, from April to October, the central government net cash requirement was £56.2bn, an increase of £20.3bn, largely because of lower cash transfers from the asset purchase facility. 

 

Public sector net borrowing excluding public sector banks (PSNB ex) over the same period was £64.1bn, an increase of £3.7bn on the previous year. 

 

IHS chief economist Howard Archer said the figures would give Osborne “a limited boost as he prepares his autumn statement”, noting that the improvement “may make it a little easier for him to argue that the data should be better over the final months of the fiscal year”. 

 

But meeting targets would be a huge challenge and will “almost certainly have to acknowledge that he is going to clearly under-shoot his fiscal targets”. 

 

“This gives him little scope to announce any major sweeteners to tempt voters,” Archer added. 

 

Berenberg's chief UK economist Rob Wood agreed.

 

“Despite October’s improvement and healthy economic growth this year, chancellor George Osborne has suffered a disappointing fiscal year,” he said. 

 

“In his budget back in March, the chancellor had been looking to shave some £10bn off the underlying public sector net borrowing requirement in 2014/15 compared to 2013/14. The hope and expectation has been that extended improved economic activity will increasingly support tax receipts while markedly stronger house prices and increased housing market activity overall are boosting stamp duty receipts. Meanwhile, the much improved labour market helps to limit benefit payments."

 

Although Wood acknowledged the “distorting factors” due to matters such as bonus pay being deferred and the Swiss Tax agreement, he argued it was not enough to explain “the ongoing largely disappointing performance of the public finances, which primarily reflects income tax receipts coming in well below original expectations despite high and rising employment”.