UK govt slipping off fiscal target

July 23, 2014 - 1:39:53 am

LONDON: Britain’s public finances showed a bigger than expected deficit in June, continuing a weak start to the tax year and leaving Finance Minister George Osborne with a lot of catching up to do to meet his fiscal goals.

The government failed to reduce public borrowing during the first three months of the 2014-15 fiscal year, possibly limiting its ability to offer any tax cuts or other voter-friendly surprises ahead of a national election in May next year. Deficit reduction is the central economic policy of the Conservative-led coalition, which came to power in May 2010 when Britain’s budget deficit was 11 percent of annual economic output — one of the highest for a major economy.

The Office for National Statistics said on Tuesday that the public sector finances, excluding financial sector interventions, showed a deficit of £11.37bn in June. That was up from £7.59bn in June 2013 and well above analyst forecasts of a deficit of £10.65bn in a poll. Stripping out the effect of cash transfers from the Bank of England, the 2014-15 deficit to date was £36.1bn, 7.3 percent higher than at the same point a year ago.

Britain’s government is aiming to get the deficit down to 5.5 percent of gross domestic product in the 2014-15 fiscal year, from 6.5 percent of GDP in 2013-14, which will require a near 10 percent reduction in borrowing in cash terms. If the Conservatives are returned to power next May, Osborne has said he wants to wipe out the deficit altogether by early 2019.

The ONS said yesterday that some factors meant that trends in borrowing in the first three months of the current tax year, which began in April, might not be representative of the year as a whole. Income tax payments in the first three months of this tax year were 3.5 percent lower than a year before, when revenues were higher than usual due to tax changes and there were also receipts from a Swiss tax avoidance deal. Reuters