- Public finance data for 2019/20 has been overtaken by recent events, including the Government pledging substantial fiscal support to businesses and household affected by coronavirus in an attempt to protect the UK economy as much as possible. Further out, the Government has committed to lifting public investment which will push up PSNBex.
- The February public finances figures showed modest year-on-year improvement as the deficit on the budget (measured in terms of PSNBex) came in at £331 million, compared to a shortfall of £583 million a year earlier. February tends to see a small deficit on the public finances as there are delayed tax receipts coming in. Some helpful news saw January’s surplus being revised up to £11.7 billion from the previously reported £9.8 billion.
- PSNBex amounted to £44.0 billion over the first 11 months of fiscal year 2019/20, up 10.4% from £39.9 billion during April 2018-February 2019.
- The Office for Budget Responsibility (OBR) has forecast that PSNBex will come in at £47.2 billion for 2019/20, so it needs to be limited to no more than £3.2 billion in March to meet that target. On the surface this looks very doable as there was a surplus of £970 million in March 2019 and a deficit of £1.2 billion in March 2018. However, the economy is clearly taking a hit from coronavirus this month, which is likely to adversely impact public finances even before the Chancellor’s emergency fiscal measures start to inflate the deficit.
- Central government receipts rose 3.0% year-on-year in February. There was a 4.8% year-on-year increase in VAT receipts; this suggests decent retail sales over the month which could have been lifted by the start of panic buying related to coronavirus concerns.
- However, there were already signs of the economy having a difficult February with a fall of 5.4% year-on-year in corporation tax receipts, the weakest performance since 2012.
- In the budget, the OBR saw the budget deficit (PSNBex) rising to £66.6 billion in 2020/21. However, this forecast already looked too low as the OBR acknowledged that it had been made before the spread of coronavirus became a threat to the UK economy.
- Furthermore, the 2020/21 budget deficit forecast has already been massively surpassed by events with the substantial extra stimulus that the Government announced on 17 March to support businesses and consumers against coronavirus. Another major package of measures from the Chancellor is set to be imminently announced focused on helping companies to retain their staff.
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“The public finances measured in terms of Public Sector Net Borrowing excluding Banks (PSNBex) saw a slightly smaller deficit in February. It amounted to £331 million compared to a shortfall of £583 million in February 2019.
“Some helpful news came with January’s surplus being revised up to £11.7 billion from the previously reported £9.8 billion (similar to the surplus of £11.9 billion achieved in January 2019). January is an important month for the public finances and always sees a surplus as it is when most tax receipts come in including for self-assessed income tax. The January performance can sometimes be affected by the late arrival of tax receipts so it is often necessary to look at the January and February figures combined.
“Over the first 11 months of fiscal year 2019/20 (April 2019-February 2020) borrowing totalled £44.0 billion, up £4.2 billion, or 10.4%, on the shortfall of £39.9 billion over April 2018-February 2019.
“The OBR estimated last week that PSNBex would come in at £47.2 billion in 2019/20 (tweaked slightly in a revised forecast from the £47.4 billion shortfall contained in the budget).
“This means that PSNBex needs to be limited to no more than £3.2 billion in March to meet that target. On the surface this looks very doable as there was actually a surplus of £970 million in March 2019 and a deficit of £1.2 billion in March 2018. However, the economy is clearly being impacted by the coronavirus this month, and that will likely adversely affect the public finances even before the Chancellor’s emergency fiscal measures start to inflate PSNBex.
“Central government receipts rose 3.0% year-on-year in February.
“Income and capital gains tax receipts were up 2.6% year-on-year in February, helped by higher employment and an overall firming in earnings growth over 2019. Self-assessed income tax and capital gains tax receipts were £6.0 billion in February, the same as in February 2019.
“VAT receipts were up 4.8% year-on-year in February; this points to decent retail sales over the month which could have been lifted by the start of panic buying related to coronavirus concerns.
“There was notably a fall of 5.4% year-on-year in corporation tax receipts, the weakest performance since 2012.
“Meanwhile, there was an increase of just 0.4% year-on-year increase in central government expenditure in February. This was limited by a 10.4% year-on-year drop in interest payments.
“Over the first 11 months of fiscal year 2019/20, central government receipts were up 2.4% year-on-year. Income and capital gains tax receipts were up 2.9% year-on-year while VAT receipts were up 3.2%. However, corporation tax receipts were down 4.1% year-on-year.
“Government expenditure was up 2.7% year-on-year over the first 11 months of fiscal 2019/20.”