UK government borrowing worse than expected in August

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UK government borrowing was unexpectedly large in August as tax receipts disappointed.

Total borrowing came in at £6.75bn, up £2.4bn on the same month in 2017, according to the Office for National Statistics (ONS). City of London economists had expected borrowing of just £3.4bn.

Total tax receipts were up only 1.6 per cent on last year.

The ONS also identified the uprating of the state pension by 3 per cent (in line with inflation in September 2017) and a £1bn UK contribution to the EU budget as a reason for higher borrowing in the month than last year.

Total current spending was up 5.4 per cent on the same month a year earlier.

However, the deficit over the course of the financial year so far of £17.8bn remains below official projections after several months of lower than expected public borrowing.

At the same stage in the 2017-18 financial year the government had borrowed £25.6bn.

The Office for Budget Responsibility in March forecast full-year borrowing for 2018-19 of £37.1bn.

Despite August’s setback, borrowing still looks set to undershoot that, something that is putting pressure on the chancellor, Philip Hammond, to ease public spending restraint in the Autumn Budget.

“Our forecast remains for borrowing to come in at £34bn this year. And we think that the fiscal watchdog is likely to revise its forecast down in November, giving the chancellor room to deliver the promised increase in health expenditure without having to increase taxes or make cuts elsewhere,” said Andrew Wishart of Capital Economics.

In August VAT receipts rose 3 per cent, slower than the 5.6 per cent rate for the financial year to date.

Income and wealth taxes were up 1.7 per cent, again down from the 4.1 per cent growth rate so far in 2018-19.

Samuel Tombs of Pantheon said that the deterioration in tax receipt growth would make the chancellor “a little nervous” but judged that Mr Hammond, under pressure from Conservative MPs, was still likely to ease austerity measures in his forthcoming Budget.