Britain’s budget shortfall was larger than economists forecast in June, prompting some to question whether Chancellor of the Exchequer George Osborne can meet his deficit-reduction targets for the year.
The 14 billion-pound ($22.6 billion) deficit, which excludes government support for banks, was little changed from the 13.6 billion pounds posted a year earlier, the Office for National Statistics said in London today. The median of 13 forecasts in a Bloomberg News survey was for a deficit of 12.5 billion pounds. Revenue rose 5.6 percent and spending grew 4.9 percent.
The government is pushing through austerity measures to reduce the budget shortfall, which reached a record 11 percent of gross domestic product in the aftermath of the recession. With the economic recovery showing signs of cooling, the Labour opposition and some economists say Osborne may find it hard to achieve his target of limiting the deficit to 122 billion pounds in the current fiscal year.
“Expenditure will need to be reined back in the coming months,” to meet that goal, said Hetal Mehta, an economist at Daiwa Capital Markets Europe in London. “But with economic growth remaining feeble, tax receipts could falter, and we think it is more likely that the government ends up overshooting its target.”
In the first three months of the fiscal year, the budget gap was 39.2 billion pounds, little changed from a year earlier, although April 2010 saw a 3.5 billion-pound boost from a one-time tax on banker bonuses introduced by the previous Labour government. The current-budget deficit, which excludes net investment, was also little changed at 33.9 billion pounds.
A jump in value-added tax last month, reflecting January’s increase in the rate to 20 percent, helped to offset lower receipts of income tax and corporation tax. The budget shortfall including government support for banks was 12 billion pounds, while the cash measure of the deficit was 21 billion pounds. Net debt climbed to 944.3 billion pounds, or 61.9 percent of GDP.
The underlying deficit in the fiscal year that ended in March was 142.1 billion pounds, 1.1 billion pounds lower than previously estimated. The change was due to an upward revision to tax receipts and downward revisions to borrowing by non-financial public corporations, the statistics office said.
“Today’s figures show that the government’s fiscal plans remain on track and in line with the overall forecast for the year from the independent Office for Budget Responsibility,” the Treasury said in an e-mailed statement.
In a commentary released today, the OBR noted the distortion caused by the bank payroll tax last year and said it expects growth in receipts to accelerate from the 4.6 percent achieved in the first three months of the fiscal year.
High crude prices and the government decision to increase taxes on oil-production profits will boost offshore corporation tax later in the year, the fiscal watchdog said. Revenue will also be boosted by the “delayed impact” of the new 50 percent top tax rate on personal incomes above 150,000 pounds, it said.
Prime Minister David Cameron’s Conservative-led government has staked its reputation on being able to eliminate a structural deficit of almost 5 percent of economic output within the current parliament, which ends in 2015. The cuts involve the loss of more than 300,000 public-sector jobs and 18 billion pounds of welfare reductions.
The impact of the measures was underlined today when Her Majesty’s Inspectorate of Constabulary said British police are on course to cut 34,100 jobs between 2010 and 2015, taking the workforce back to its 2003 level. A third of the reduction, which aims to save 1.6 billion pounds, had already been made by March.
Labour’s home affairs spokeswoman, Yvette Cooper, called the cuts “an irresponsible gamble with crime and public safety.”
The pound was trading at $1.6175 as of 1.10 p.m. in London, up 0.1 percent on the day.