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Public borrowing falls to 13-year low

Tim Wallace
Philip Hammond is on track to beat his borrowing targets this year as the deficit tumbles -

Government borrowing is declining, official figures show, as the budget deficit fell in May to the lowest level for that month since 2005.

Growth in tax receipts outstripped rising spending, helping to bring down borrowing to £5bn in last month. It compares with borrowing of £7bn in the same month a year ago, and beat economists' expectations of a £6.3bn deficit.

In the financial year so far the deficit is down 25.8pc compared with the previous year, at £11.8bn.

Debt as a proportion GDP fell to 85pc, although the cash amount is still rising and now stands at at £1.78 trillion.

The economic slowdown in the UK appears not to have affected the public finances despite concerns that it could throw the Chancellor’s borrowing plans off track. Usually reduced growth should slow the pace of tax growth and risk increasing spending on areas such as benefits.

Andrew Wishart at Capital Economics said: “It’s early days yet, but if this is sustained, borrowing would undershoot the Office for Budget Responsibility’s 2018-19 forecast by £9bn or so over the year as a whole.”

But he cautioned that the numbers do include estimates and so are not yet entirely reliable.

“What’s more, if the economy holds up as we expect, borrowing is likely to undershoot the OBR’s forecast by a more significant margin in subsequent years. This would allow the Chancellor to deliver the recently promised £15bn increase in health spending over the next five years while still meeting his fiscal target.”

Budget deficit falls below pre-crisis levels in overdue success for George Osborne and Philip Hammond

Revenue from taxes on income and wealth rose 6pc from last year to £17.5bn, boosted by higher employment levels. 

Value-added tax (VAT) raised £11.5bn, up 5.4pc from last year due to higher prices and higher spending. Corporation tax brought £4.9bn into the Treasury’s coffers, up 2.4pc on the previous year.

At the same time, the Government’s monthly interest bill fell 23.6pc to £3.4bn, while spending on social benefits rose 4.5pc to £18.2bn.

Overall current receipts rose 3pc to £54bn, faster than the 0.9pc increase in current spending which came in at £56.2bn.