Government records first July surplus in 15 years but borrowing still on course to rise

 
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The chancellor received a summer boost in July, although economists expect it to be short-lived (Source: Getty)

The government recorded its first surplus in the month of July since 2002, according to the latest borrowing figures published today.

While the latest monthly figures will provide a political boost for the chancellor, Philip Hammond, year-to-date borrowing remains £1.9bn higher in the current financial year compared to last year, according to the Office for National Statistics.

The government brought in £0.2bn more than it spent in July, which cut the total borrowed so far this financial year to £22.8bn. That was larger than the £20.9bn recorded last year.

Government receipts were buoyed last month by the strong labour market, which boosted self-assessment income tax receipts to the highest on record, although higher inflation has also increased the burden of interest payments for the government.

However, the size of the deficit, which the chancellor has committed to eliminating by the middle of the next decade, is still on course to rise year-on-year.

The Office for Budget Responsibility (OBR) forecasts that borrowing will rise to £58.3bn this financial year, compared to £45.1bn in the year ending in March.

While the pace of deficit reduction required is hotly contested by politicians and economists, the size of the deficit is crucial to the political room for manoeuvre for the government ahead of the next Budget, to be announced in November.

A Treasury spokesperson said: "We are making good progress in strengthening our public finances and living within our means. Our national debt, at £65,000 for every UK household, is still too high. That is why we have a clear fiscal plan to reduce our debts and build a stronger economy for every household."

The government has come under sustained pressure since losing its majority at the start of June to increase public spending. That would likely mean the chancellor would miss his fiscal targets, which include balancing the books by 2025.

The chancellor’s job has been made harder by slowing economic growth in the first half of 2017, which could drag on tax receipts.

Ross Campbell, public sector director at the Institute of Chartered Accountants, said: “The UK economy desperately needs economic growth and too much time is spent talking rather than getting on with the job in hand.

“Instead of productivity becoming a buzzword used by the chancellor to hide inaction it’s time to see some real work to inject optimism into an economy that continues to slow.”

Howard Archer, chief economic advisor at the EY Item Club, said: “Rising dissatisfaction with austerity and the public sector pay cap is exerting pressure on the government to recalibrate fiscal policy in November’s Budget. However, it currently seems most likely that there will be limited adjustments to the fiscal approach rather than radical policy changes.”

Read more: Government borrowing is at its lowest since 2008

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