U.K. Budget Deficit Widens as Austerity Comes to an End

(Bloomberg) -- U.K. government borrowing rose strongly in the first half of the fiscal year as the government began to open the spending taps after almost a decade of austerity.

The budget deficit between April and September totaled 40.3 billion pounds ($52.2 billion), almost 22% higher than a year earlier, Office for National Statistics figures published Tuesday show. The shortfall last month alone widened to 9.4 billion pounds.

The increase reflects tax and spending giveaways announced last year, including billions for the National Health Service, as the government ends the cuts that have reduced the deficit from over 10% of GDP in the aftermath of the financial crisis.

Spending including capital investment rose 4.5% in the first six months. Departmental spending rose almost 6% as the government increased outlays on public services, ahead of forecasts for the full fiscal year. Government revenue rose by 2.8%.

A simple extrapolation from the year to date suggests the deficit in 2019-20 will come in around 50.4 billion pounds, overshooting forecasts made by the Office for Budget Responsibility.

Chancellor Sajid Javid has little hope keeping borrowing with current fiscal rules, which require the structural deficit to be less than 2% of GDP in 2020-21.

Accounting changes relating to student loans left the chancellor little room, and then he announced a significant increase in spending last month, seen as part of preparations for possible general election.

No-Deal Fears

There are fears that a no-deal departure from the EU could see the deficit swell to 100 billion pounds and send debt toward 90% of GDP, levels last seen in the 1960s.

Javid is due to present a budget on Nov. 6 and is expected to announce a new fiscal rule permitting him greater freedom to borrow for what he is describing as an “infrastructure revolution.’’

In September, spending rose 6.8% from a year earlier, driven by departmental staff costs and purchases of goods and services. This was partly offset by a near 17% fall in interest payments, as lower inflation brought down the cost of index-linked gilts.

Receipts also rose strongly, gaining 6.9% on the year. Income tax rose 8.2%, boosted by self-assessment, and value-added tax gained almost 4%. Corporation tax payments barely rose.

©2019 Bloomberg L.P.