The deficit in government spending fell to its lowest level since the global financial crisis in the last financial year despite a bump upwards in borrowing in March.
Public sector net borrowing fell by £20bn to reach £52bn for the year from April to March, according to the Office for National Statistics (ONS).
However, borrowing in March was higher than economists expected, coming in at £5.1bn during the month.
That meant the deficit between day-to-day spending and tax intake was slightly higher than estimates from the Office for Budget Responsibility (OBR), the government’s fiscal watchdog, made at the Budget at the start of last month.
The total stock of government debt from previous deficits stood at £1,729.5bn at the end of March 2017, equivalent to 86.6 per cent of GDP. The OBR expects net debt to rise to 88.8 per cent of GDP in this financial year.
The deficit rose massively during the global financial crisis as the government tried to protect the UK economy from chaos. Since peaking in 2012, borrowing has steadily declined, although at a slower pace than politicians wanted.
Chancellor Philip Hammond has set a target of reducing the deficit to below two per cent of GDP by the 2020-21 financial year, a mark he is currently set to hit.
The deficit is expected to rise next year to reach three per cent of GDP (after falling to 2.6 per cent this year), raising the incentive for the chancellor to raise taxes after the General Election. On current measures, the OBR does not expect Hammond to meet another target (set before the election announcement) of balancing the books by 2025.
Ross Campbell, public sector director at the Institute of Chartered Accountants (ICAEW), said: "The snap General Election cannot be allowed divert resources and attention away from the UK’s public finances.
“Whatever the outcome on June 8, it's important to recognise there is still a significant amount of work to be done to repair the public finances – which are projected to stay in deficit for years to come. Whoever is chancellor after the election will need to employ robust fiscal measures to tackle the massive level of public indebtedness we currently see today.”
The government will also hope the predictions by many economists of slowing consumer spending as inflation rises do not come true. Slower growth leads to lower tax revenues.
John Hawksworth, PwC chief economist, said: “Higher inflation will also act as a drag on growth over the next year while boosting some benefit payments that are linked to prices. So the improvement in the deficit could well be reversed in the coming financial year as the OBR predicted.
“In the longer term an ageing population and rising healthcare costs will also put pressure on the public finances. So while the deficit is now approaching a more sustainable level, there will still be some tough choices ahead on tax and spending for the next government.”