Surprise surplus gives Hammond wiggle room to splash the cash
Borrowing down and tax revenue up as figures reveal budget deficit lower than expected
Philip Hammond will have more money to spend on public services at this Autumn’s budget, after official figures revealed the government registered its biggest budget surplus for July in 18 years.
The Office for National Statistics reports that tax revenues exceeded spending by £2bn last month, better than the £1bn surplus City analysts had expected. Meanwhile total state borrowing for the 2018-19 fiscal year (four months in) is £12.8bn, down from £21.3bn at the same stage in 2017-18.
The better than expected borrowing leaves the UK on course to undershoot the Office for Budget Responsibility’s most recent full-year borrowing projection of £37.1bn “and will likely increase political pressure on the chancellor, Philip Hammond, to increase spending on overstretched public services in his Budget this autumn”, says The Independent.
“Faced with pressure from his own MPs to boost his party’s opinion poll standing and the political imperative to show that the economy has prospered after leaving the EU in March 2019, we expect the chancellor to use this scope to borrow more,” says Samuel Tombs of Pantheon.
Ultra-low interest rates have helped the Treasury cut spending on servicing the national debt, while higher employment has helped the public coffers, prompting the Daily Telegraph to declare “the battle against the budget deficit is almost over”.
But while the chancellor may have a little wiggle room to splash a bit of extra cash, he is likely to err on the side of caution, with the Treasury “trying to keep a lid on expectations ahead of the budget in November”, says the BBC’s economics editor Kamal Ahmed.
“Plenty of spending pledges have already been made,” he says, listing Theresa May’s promise for substantial new funding for the NHS and higher public sector pay settlements as reasons to suggest taxes may have to rise.
As to whether this could prove the final nail in the coffin of austerity, BBC economics correspondent Andy Verity says: “Those who want to keep austerity will point out that the debt - all the accumulated deficits of the past - is still very high by the standards of recent decades. And it's climbing. However, their opponents might retort, it's shrinking as a proportion of the economy. Other things being equal, that means it should be getting easier, not harder to manage.”