Philip Hammond has been handed an early Christmas present after government borrowing dipped in November, beating City expectations that the UK’s slowing economic growth would send the public finances deeper into the red.
Figures from the Office for National Statistics (ONS) show public sector net borrowing, excluding state-owned banks, fell to £8.7bn in November, down £200m on the same month last year.
The consensus of City economists had been for a rise to £9bn in response to sluggish wage growth, which has restricted income tax receipts and pushed up borrowing in October by £500m to £8bn.
The deficit for the current financial year – April to November – hit its lowest level in a decade, dropping by £3.1bn to £48.1bn over the period.
A jump in tobacco tax receipts gave the chancellor a boost while the Treasury’s strict welfare spending limits kept tax credit and housing benefit costs in check.
But the gradual improvement in the public finances is expected to be cut short in the new year, with lower self-assessment income than seen in the last financial year.
Tax changes last year brought forward tax payments by those with self-employment income, which the Treasury’s economic forecaster, the Office for Budget Responsibility (OBR), has said was unlikely to be repeated this year.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The trend will deteriorate primarily because self-assessment tax receipts in January and February 2017 were boosted temporarily by about £4bn, due to prior tax changes.”
The OBR cut its expectations for government borrowing this year to £49.9bn in the autumn Budget but warned of a worsening picture for 2019 and beyond following downward revisions to productivity that will continue to restrict wage growth.
Updating on its forecasts last month, the OBR called into question the chancellor’s target for balancing the books by 2022, saying the government may not eradicate the deficit before 2031.
Tombs said a series of one-off costs would also restrict any further improvements in the public finances, including payments to the EU, which would be about £1bn higher in December than in the same month in 2016, when the UK received a net repayment of funds.
He said central government investment would also need to grow strongly in the remaining months of this financial year in order to meet the government’s spending commitments.
“All told, borrowing is on track to meet, but not significantly undershoot, the OBR’s November forecast,” he said.
“The chancellor can go on his Christmas vacation content that the public finances have weathered the economy’s slowdown well this year. But with slow growth likely to persist next year and little margin for error now left to meet fiscal rules, it’s unlikely that the chancellor will be able to soften his fiscal plans materially further again,” he added.
The UK’s total public sector net debt, excluding state-owned banks, increased to £1,734.8bn in November, equivalent to 84.6% of gross domestic product (GDP).
A Treasury spokesman said: “This is the best year-to-date borrowing in a decade, but there is still further to go to repair the public finances.
“We continue to build an economy fit for the future by taking a balanced approach, getting debt falling while investing in our vital public services and keeping taxes low.”