- The Public finances data for 2019/20 has been overtaken by recent events with the Government pledging significant fiscal support to businesses and household affected by coronavirus to help protect the economy as much as possible. Indeed, the EY ITEM Club suspects that the budget deficit (measured in terms of PSNBex) will exceed £200 billion in 2020/21 (EY ITEM is forecasting £205 billion, 9.8% of GDP).
- The budget deficit (PSNBex) just missed the revised budget target of £47.4 billion for 2019/20 as it came in at £48.7 billion.
- The public finances saw marked year-on-year deterioration in March as PSNBex came in at £3.1 billion, compared to a surplus of £891 million a year earlier.
- The ONS said that the effect of coronavirus on the public finances in March was relatively limited – partly because the social health measures were only introduced later on in the month, while some of the announced Government measures did not take effect during March. However, the ONS did say it was also unclear of the effects of these measures in the available data. The ONS indicated that the March public finance data will likely be prone to bigger revisions than normal as the effects of coronavirus become clearer.
- Evidence of weakened economic activity in March amid increasing coronavirus restrictions came with a 0.7% year-on-year fall in central government receipts. Most notably, income and capital gains tax receipts were down 3.3% year-on-year in March, as some jobs were lost and pay was impacted. There was also a fall of 1.8% in corporation tax receipts while VAT receipts only edged up 0.1% year-on-year.
- Central government expenditure increased 12.3% year-on-year in March as it started to be pushed up by government measures to support the economy.
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 weakened year-on-year performance in March. There was a deficit of £3.1 billion compared to a surplus of £891 million in March 2019.
Along with some revisions to the back data, this meant that PSNBex totaled £48.7 billion (2.2% of GDP) over fiscal year 2019/20. This was 1.3 billion above the OBR’s March budget estimate of £47.4 billion and was up from £38.9 billion (1.8% of GDP) in 2018/19.
Central government receipts fell 0.7% year-on-year in March, as they were clearly affected by weakening economic activity as coronavirus restrictions increasingly impacted.
Income and capital gains tax receipts were down 3.3% year-on-year in March, as some jobs were lost and pay was impacted. There was also a fall of 1.8% in corporation tax receipts while VAT receipts only edged up 0.1% year-on-year. This was limited by companies being allowed by the Government to defer VAT payments to help them combat the impact of coronavirus on their activity.
Meanwhile, central government expenditure increased 12.3% year-on-year as it started to be pushed up by government measures to support the economy in the face of coronavirus.
Central government receipts rose 2.0% over fiscal year 2019/20. Income and capital gains tax receipts were up 1.9% year-on-year while VAT receipts were up 2.0%. However, corporation tax receipts were down 1.8%.
Government expenditure rose 3.5% over 2019/20.