June 21 (Bloomberg) -- Britain’s budget deficit narrowed to 17.4 billion pounds ($28.2 billion) in May as a jump in tax receipts outpaced growth in government spending.
The shortfall compared with 18.5 billion pounds a year earlier, the Office for National Statistics said in London today. The median of 12 forecasts in a Bloomberg News survey was for a deficit of 17 billion pounds. Revenue rose 8.2 percent, boosted by January’s increase in value-added tax to 20 percent. Spending grew 2.2 percent.
While the figures provide a boost for Chancellor of the Exchequer George Osborne, doubts remain over whether he can meet his goal of reducing the deficit to 122 billion pounds in the current fiscal year amid weaker-than-forecast growth and resistance to the cuts from labor unions. The budget gap in the first two months was 1.5 billion pounds higher than a year earlier at 27.4 billion pounds.
“Overall, the figures provide a clear warning that the weakness of the economy could derail the government’s deficit-reduction plans and will add fuel to the debate over whether it should scale back the size and speed of the fiscal tightening,” said Jonathan Loynes, chief European economist at Capital Economics in London.
The pound was little changed against the dollar at $1.6205 as of 1.07 p.m. in London.
The government has staked its reputation on eliminating the bulk of the deficit by 2015. Prime Minister David Cameron yesterday dismissed opposition Labour Party calls to slow the pace of cuts, saying “a Plan B would stand for bankruptcy.”
The shortfall, which reached a record 11 percent of gross domestic product in the aftermath of the recession, is projected to narrow to 7.9 percent of gross domestic product in the fiscal year that began in April, according to Office for Budget Responsibility, the fiscal watchdog that produces forecasts for the Treasury.
The squeeze has put Cameron’s Conservative-led coalition on collision course with labor unions. About 750,000 public-sector workers are set to take part in a national strike on June 30 to protest against government plans to curb their pension rights.
Labour says efforts to narrow the deficit risk becoming self-defeating as the cuts hit consumer confidence and hold back economic growth.
The government is “cutting too far and too fast” and should repeat the one-time tax on banker bonuses levied by the previous Labour administration, Angela Eagle, who speaks for the party on Treasury affairs, said in a statement.
Today’s figures show that revenue growth over the first two months was weaker than the OBR’s forecasts for the full fiscal year, while spending is increasing more quickly than predicted, mainly as a result of higher debt-interest payments.
In a commentary released today, the OBR said spending estimates are often revised “considerably” in later months. It also noted that receipts growth in April was depressed by a year-earlier boost from the bank bonus tax and said the pace would accelerate.
High oil prices and Osborne’s decision to increase taxes on oil-production profits will boost offshore corporation tax by as much as 50 percent while income tax in January and February next year will reflect the “delayed impact” of the new 50 percent top tax rate, it said.
The cash measure of the deficit was 11.1 billion pounds last month, compared with a median forecast of 6.6 billion pounds. The shortfall including government support for banks was 15.2 billion pounds.
The government revised the deficit for the fiscal year that ended in March to 143.2 billion pounds, 3.8 billion pounds more than previously estimated. The revision reflected updates to national accounts data, the statistics office said.
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