Government deficit rises faster than expected in April as tax revenues stall

Jasper Jolly
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The Conservative Party Hold A Press Conference In Central London
Chancellor Philip Hammond and Prime Minister Theresa May have promised to eliminate the deficit by 2025 if re-elected (Source: Getty)

The British government’s spending deficit rose more than expected in April, with borrowing rising year-on-year as tax revenues slowed.

The government spent £10.4bn more than it received in revenues during the last month, £1.2bn more than April 2016, according to the Office for National Statistics (ONS).

That represented the highest comparable borrowing figure since 2014, with the deficit over the course of the year predicted to rise above last year's reading by the Office for Budget Responsibility (OBR), the government’s official forecaster.

Read more: Government borrowing is at its lowest since 2008

Year-on-year tax receipts growth slowed to 3.9 per cent in April, down from 6.3 per cent in March, as growth in VAT receipts, the UK's main consumption tax, stalled to only 0.2 per cent.

However, the size of the deficit in the financial year ending in March was also revised downwards to £48.7bn, the government’s lowest annual deficit since 2008. The OBR had predicted a £51.7bn annual deficit.

The rise in borrowing comes as the UK enters the final stages of the General Election campaign.

In recent elections the size of the deficit (and the timetable for eliminating it) has been one of the central debates, although it has taken a smaller role during the current campaign.

The deficit, and consequently the public sector’s long-term debt, increased massively in the aftermath of the global financial crisis as the government bailed out banks as it tried to avoid a depression.

Read more: Prime Minister Theresa May unveils Conservative manifesto

Former chancellor George Osborne initially pledged in 2010 to eliminate the deficit by 2015, but weak growth prevented that from happening over successive Parliaments.

The Conservative party now does not plan to spend less than revenues until 2025 at the earliest. Current chancellor Philip Hammond has made it clear he wants to retain some headroom to increase spending in the case of an economic shock during the Brexit process.

Meanwhile the Labour party manifesto commits to balancing the books on current government spending, but pledges to use historically low interest rates to spend more on infrastructure, which most economists believe would provide a boost to growth, at least in the short term.

Read more: Investors can't get enough of government debt

Ross Campbell, public sector director at the Institute of Chartered Accountants (ICAEW), said reducing the deficit should be among the priorities of the new government after 8 June, with the UK government projected to pay £7bn more servicing its debt.

He said: “The aftermath of the General Election is the ideal time to strengthen the foundations of the UK economy.”

The government’s public sector debt currently stands at £1.7 trillion, or 86 per cent of the UK’s GDP, the ONS said.

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