Government borrowing has fallen to its lowest level year-to-date since before the financial crisis, delivering some welcome relief to chancellor Philip Hammond, who is otherwise expected to have limited room for manoeuvre in the upcoming Budget.
Public sector net borrowing (excluding state-owned banks) decreased by £2.5bn to £32.5bn in the financial year from April to September, the smallest comparable total since 2007, according to Office for National Statistics (ONS) figures released today.
Borrowing fell by £700m during the month of September, also the lowest in a decade.
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The latest figures show the government is likely to undershoot forecasts from independent budget watchdogs at the Office for Budget Responsibility (OBR), giving the chancellor more money to play with in spending giveaways. The OBR has forecast that borrowing reach £58.3bn during the financial year ending March 2018, a steep increase of £12.6bn on the previous year.
However, the elbow room comes as the Treasury faces significant tensions on two fronts: political pressure to ease increasingly unpopular austerity at the same time as the OBR is expected to slash productivity forecasts.
The expected cut to forecasts, which will mean predictions of much lower tax revenues in future years, has “hampered” the chancellor, according to Howard Archer, chief economic advisor at the EY Item Club, which uses Treasury models for its forecasts.
Archer said: “The chancellor has frequently indicated that he remains committed to the fiscal rules set out at Autumn Statement which lead to a balanced budget by mid-2020s. This limits his scope for bold action, without additional revenue-raising measures.”
The chancellor is also targeting a reduction of public sector debt as a proportion of GDP, but the debt ratio rose by 4.4 percentage points year-on-year from April to September.
The Treasury has been forced to try to manage expectations of a large spending increase as it sticks to its self-imposed fiscal targets.
A Treasury spokesperson today said: “While we’ve made great progress getting the deficit down by over two-thirds, government borrowing is still far too high at over £150m a day.
“We will continue to take a balanced approach that deals with our debts and allows us to invest in our public services”, the spokesperson added.