Government borrowing fall raises scope for more spending

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Government finances have continued to improve, potentially giving more scope for the Chancellor, Philip Hammond, to raise spending in the Budget.

The government borrowed £7.8bn in April – the lowest figure for April since 2008, according to official figures.

The Office for National Statistics (ONS) also revised the borrowing figure for last year to £40.5bn, down from its previous estimate of £42.6bn.

The deficit was 2% of GDP last year, the lowest rate since 2002.

When George Osborne took over as Chancellor in 2010, borrowing stood at 9.9% of GDP.

Several years of austerity helped cut that figure and a policy of restricted spending has continued under his successor Philip Hammond.

“The public finances were boosted in April by strong income tax receipts, which was helped by the strong rise in employment over the early months of 2018,” noted Howard Archer, chief economic adviser to the EY Item Club.

How much money the Chancellor will have to play with will depend on how the economy performs this year.

The year got off to a disappointing start when bad weather restricted growth to just 0.1% in the first quarter.

However, Bank of England governor Mark Carney has reiterated his view that the slowdown is temporary.

“Our view is not that circumstances changed in the first quarter. It’s more likely to have been temporary and idiosyncratic factors that slowed the economy,” he told MPs on Tuesday.


by Kamal Ahmed, BBC economics editor

With public sector net borrowing now £4.7bn below the Office for Budget Responsibility’s official forecast – record levels of employment are keeping tax receipts healthy – a little bit of “wriggle room” has certainly opened up in the public finances.

If the trend continues, the government could announce more spending in the autumn Budget and still be on course to hit its own target of balancing borrowing and spending by the middle of the next decade.

Of course there are many – including in the Labour Party – who say the Conservative focus on “balancing the books” and eliminating the deficit is the wrong approach and the government should borrow more to invest.

Philip Hammond, a fiscal conservative, sees a different challenge.

As the deficit falls, colleagues could become bolder in their spending requests.

And the balance between keeping “control” of the public finances and loosening the spending reins may tip towards the latter.

The government has already made it clear the NHS is set for a major Budget boost.

Details of that are expected imminently.

If the economy does bounce back from its stupor in the first three months, as the Bank of England expects, then the chancellor could be rather more generous on spending by the end of the year than he may originally have expected.