U.K. Borrowing Hits 17-Year Low as Anti-Austerity Calls Grow
(Bloomberg) -- The U.K. government is borrowing less than at any time since the turn of the millennium, fueling pressure on Chancellor Philip Hammond to end austerity.
The budget deficit in the fiscal year through March fell to 24.7 billion pounds ($32 billion), or 1.2 percent of gross domestic product, the Office for National Statistics said Wednesday. That’s the least since 2001-02, when Tony Blair was prime minister.
The deficit has fallen from a towering 9.9 percent of GDP in the aftermath of the financial crisis and Britain is now only borrowing to fund its investment needs. But the squeeze has come at a cost, slashing local-authority budgets and entailing a brutal pay clampdown for millions of public-sector workers.
Austerity fatigue cost the ruling Conservative Party its parliamentary majority in 2017. Hammond has pledged a major cash boost for the health service and says an end to austerity is in sight. However, just how far he can go remains unclear, with Brexit uncertainty continuing to obscure the economic outlook.
Hammond has a 27 billion-pound margin built into his fiscal projections, and he’s pledged to release some of the money to departments this year if Britain avoids a no-deal departure from the European Union.
“Borrowing is now low enough for whoever is in office to set fiscal policy according to economic or political aims as opposed to the overriding objective of reducing the deficit,” said Andrew Wishart, an economist at Capital Economics. “Our forecast is for the deficit to fall to zero in 2021-22, so we wouldn’t be surprised if fiscal policy is loosened again.”
The deficit last year was slightly above the 22.8 billion pounds forecast by the Office for Budget Responsibility in March but well down on 2017-18, when the shortfall was 41.8 billion pounds.
Driving the improvement was strong revenue growth. Boosted by buoyant earnings growth at the top of the pay ladder, income-tax receipts rose 7 percent, the biggest gain since 2007-08. Value-added tax climbed 5.6 percent, the most since 2011-12. The government also spent 7 billion pounds less on debt costs, thanks to lower interest rates.
March alone saw the deficit widen to 1.7 billion pounds, as higher departmental spending and capital investment pushed up overall expenditure by 5.7 percent. Revenue grew 5 percent, with a 6.4 percent income-tax surge possibly reflecting the impact of bonus payments.
The central government net cash requirement totaled 37.3 billion pounds last year instead of the 34 billion pounds expected by the OBR. As a result, planned U.K. gilt sales for 2019-20 will now be 3.7 billion pounds higher than previously forecast, the Debt Management Office announced on Wednesday. That will bring total issuance for the period to 117.8 billion pounds.
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