ITEM Club says the outlook for public finances is very uncertain
Nida Ali, economic advisor to the EY ITEM Club, comments on today’s public finances figures:
- Stripping out the one-off transfer from the headline number, these figures paint a worrying picture for the public finances
- That the rise in government spending continues to outpace the increase in tax revenues is a cause for concern
- The outlook for public finances is very uncertain, and with the Eurozone crisis escalating, the OBR's forecasts already look too optimistic
“Stripping out the one-off transfer of £28bn from the headline numbers, today's figures paint a worrying picture for the public finances. With borrowing increasing by over £2bn compared to the same time last year, and the current budget deficit widening by more than £4bn, it is a discouraging start to the financial year.
“That the rise in government spending has continued to outpace the increase in tax revenues is a cause for concern. In particular, it was surprising that even though unemployment has started to decline, spending on social benefits has been accelerating in recent months. Growth in tax receipts has practically ground to a halt, with revenues from corporation tax and income tax being particularly disappointing. The healthy increase in VAT revenues provides a crumb of comfort, particularly after the weaker results of recent months. It does though look a little odd given that retailers have suggested that poor weather badly affected consumer spending in April.
“The outlook for the public finances is very uncertain. Allowing for the Royal Mail transfer, the OBR expects the government to lower borrowing by £6bn in 2012/13. But today's figures already raise that target to more than £8bn. This is beginning to look a little optimistic given the fragility of the recovery and the substantial risks arising from the escalation of the Eurozone crisis.”