Reduction in public borrowing seen in recent years may be starting to stutter - EY ITEM Club comments

25 April 2017

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  • March’s fiscal numbers leave 2016-17 deficit in line with OBR forecast
  • But details offer cause for concern, with softness in income tax and VAT revenues

Martin Beck, senior economic advisor to the EY ITEM Club, comments:

“The public finances numbers for March delivered a mixture of good and bad news. On the positive side, a deficit of £5.1b meant that borrowing for the 2016-17 fiscal year came in line with the OBR’s March Budget forecast of £51.7b. This represented a drop of £20b compared to the previous year and was equivalent to 2.6% of GDP, the smallest shortfall since 2007-08 and down from a peak of 10% of GDP immediately following the financial crisis.

“But the details of March’s numbers also offered cause for concern. For one, the deficit was £0.8b higher than that seen in March 2016. In part, this reflected a modest 3.5% rise in total receipts, the weakest in a year. Income tax receipts dropped 2%, the first annual fall since December 2012. And a slowdown in consumer spending may be beginning to affect VAT revenues, which dropped by 0.8% in the first quarter compared to the same period in 2016. Meanwhile, central government spending in March was up 3% year on year. 

“The steady reduction in public borrowing of recent years may be starting to stutter, but policy implications should be limited.”