U.K. Budget Deficit Widened in August in Blow to OsborneScott Hamilton
Britain’s budget deficit widened in the first five months of the fiscal year, underlining the task facing Chancellor of the Exchequer George Osborne to cut borrowing this year.
Net borrowing excluding public-sector banks was 45.4 billion pounds ($74.2 billion) between April and August compared with 42.8 billion pounds a year earlier, the Office for National Statistics said today. In August alone, the deficit was 11.6 billion pounds versus 11 billion pounds as capital investment rose. Tax income increased 3.2 percent and spending climbed 2.6 percent.
Todays’ figures reflect changes made following an ONS review of the public finances and to comply with new European accounting standards. Among other things, Network Rail is reclassified as part of central government and there are changes to the treatment of gilt-coupon payments from the Bank of England.
“While all of these changes may make comparative analysis of the public finances initially more confusing, the message essentially remains the same: the chancellor has a mighty tough job to meet his fiscal targets for 2014/15,” said Howard Archer, chief U.K. and European economist at IHS Global Insight in London.
Figures produced on an unrevised basis, which exclude the BOE payments and the effects of temporary financial interventions, the deficit was 12.5 billion pounds in August compared with 11.7 billion pounds a year earlier.
On the same basis, the shortfall since April 1 widened to 49.2 billion pounds from 46.7 billion pounds, leaving Osborne adrift of his full-year target of cutting the deficit by 12 billion pounds to 5.5 percent of gross domestic product.
While taxes rose across the board in August, revenue from incomes posted the weakest performance, reflecting the continued weakness of wage growth. Year-to-date comparisons with a year earlier suffer because bonus payments were pushed into April 2013 to take advantage of a cut in the top income-tax rate. Income tax and capital gains tax fell 0.8 percent between April and August.
Cash gauges of the public finances aren’t affected by the changes announced today. The measure the Treasury uses to calculate how much it needs to borrow in the financial markets showed a deficit of 3.1 billion pounds.
Net debt climbed to 1.43 trillion pounds in August. The pound stayed lower against the dollar after the data and was trading at $1.6398 as of 11:07 a.m. London time, down 0.2 percent on the day.