LONDON, Nov 21 (Reuters) – Britain borrowed less than predicted by its budget forecasters in the first seven months of the financial year, data showed a day before finance minister Jeremy Hunt is expected to announce some pre-election tax cuts.
Government borrowing between April and October totalled 98.3 billion pounds ($122.49 billion), the Office for National Statistics (ONS) said on Tuesday.
The data meant borrowing was running about 22 billion pounds higher than in the same period last year but almost 17 billion pounds less than the Office for Budget Responsibility (OBR) forecast in March, giving Hunt some fiscal room for manoeuvre.
Prime Minister Rishi Sunak – who is expected to call an election next year – said on Monday that his attention was turning to tax cuts after a slowing in Britain’s high inflation rate and stronger tax revenues.
But Sunak stressed he would tread carefully to avoid the risk of reviving inflation. He vowed there would be no repeat of last year’s promises of huge tax cuts that sent the bond market into a meltdown and cost Liz Truss her job as prime minister.
Moreover, the OBR is expected to lower its economic growth outlook on Wednesday, making it harder for the government to meet its target of bringing debt down as a share of gross domestic in the last year of a five-year forecast period.
“The short-term improvement in the fiscal position this year will likely prove unsustainable over the next five years,” Michal Stelmach, senior economist at KPMG UK, said.
The prospect of higher interest rates than expected by the OBR in its March forecasts would more than offset any windfall over the medium term, Stelmach said.
Hunt said he would stick to his commitment to being responsible with the nation’s finances.
“At my Autumn Statement tomorrow, I will focus on how we boost business investment and get people back into work to deliver the growth our country needs,” he said in a statement after Tuesday’s data.
As well as incentives to businesses, Hunt is reported to be considering a range of options for easing the tax burden on voters who are siding mostly with the opposition Labour Party, according to opinion polls.
Britain’s public finances – like those of many economies – were hit hard by huge government spending to offset the shocks of the coronavirus pandemic and last year’s surge in energy prices.
Public debt now stands at more than 2.6 trillion pounds, almost 98% of GDP, more than three times its size 20 years ago.
The ONS said that in October alone, public sector net borrowing, excluding state-owned banks, was 14.9 billion pounds last month.
A Reuters poll of economists had pointed to public sector net borrowing, excluding state-owned banks, of 12 billion pounds in the month.
The figure was also higher than the OBR’s forecast for borrowing of 13.7 billion pounds in the month.
Tuesday’s figures showed revenue in the April-October period were up by 4.5% despite a largely flat-lining economy, reflecting in part the impact of inflation and strong wage growth on tax income for the government.
Spending was up by 4.8% with net social benefits, mostly welfare spending, up nearly 14%.
Sunak said on Monday that he wanted to change the country’s system of benefits for working-age adults, saying it was “a national scandal” that around 2 million people of working age were not in work.
The ONS figures showed debt interest costs were down by almost 20% in the April-to-October period, helped by a fall in the retail prices index, the benchmark for inflation-linked government bonds.
($1 = 0.8025 pounds)
Reporting by William Schomberg; editing by Kate Holton and Jason Neely
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