U.K. Deficit Goal In Doubt as Spending Offsets Tax Jump

Britain’s budget shortfall was little changed in June as increased spending offset a jump in tax receipts, casting doubt over whether Chancellor of the Exchequer George Osborne can meet his deficit-reduction goal.

Net borrowing was 11.4 billion pounds ($19.5 billion) compared with 11.5 billion pounds a year earlier, the Office for National Statistics said today. That compares with a forecast of 11.1 billion pounds in a Bloomberg survey of economists. Government revenue rose 4.7 percent and spending grew 3.9 percent.

While the July tax data provide further evidence of strengthening growth in the U.K., a poor start to the fiscal year has made it harder for Osborne to achieve his full-year target of cutting the deficit to 5.5 percent of gross domestic product. Between April and June, the shortfall was 36.1 billion pounds compared with 33.7 billion pounds a year earlier.

“The chancellor has some catch-up to do,” said Victoria Clarke, an economist at Investec Securities in London. Osborne will need to undershoot last year’s borrowing by 1.4 billion pounds a month to hit his target, she said.

The widening was due to companies pushing bonus payments into April last year to take advantage of a cut in the top income-tax rate, a boost from a Swiss tax deal in May 2013 and changes in the size of central government grant payments, the ONS said.

OBR Forecast

With the economy on course for its strongest growth since 2007, the Office for Budget Responsibility predicted in March the deficit will narrow to 95.5 billion pounds in the current fiscal year. It stood at 106 billion pounds in the year through March, or 6.5 percent of GDP..

The pound was little changed after the figures and was trading at $1.7066 as of 12:25 a.m. in London.

Tax revenue rose across the board last month, with value-added tax on sales up 5.5 percent, income tax up 2.3 percent and corporation tax jumping almost 18 percent. Stamp duty surged by more than a third in the latest three months from a year earlier to 3.5 billion pounds, with 2.7 billion pounds coming from purchases of property.

Departmental spending rose 5.4 percent, welfare costs climbed 3 percent and there was an increase in capital investment.

The cash gauge the Treasury uses to calculate how much it needs to borrow in the financial markets showed a deficit of 18.1 billion pounds last month. Overall, the public sector including state-controlled banks recorded a shortfall of 11.8 billion pounds.