Borrowing lower than OBR forecast

Public sector net borrowing (PSNBX) is expected to come in at £8bn lower than the OBR forecast after a rebound in tax revenues and public spending cuts, according to the latest Ernst & Young ITEM Club report.

Chancellor George Osborne is set to enjoy the “unexpected” £8bn windfall that is expected to see full year HMRC receipts for 2010/11 come in £4bn ahead of forecast - largely due to robust growth in income tax, accounting for £3bn of the total overshoot.

The ITEM Club says that the government appears to be gaining more control over the public purse – with PSNBX forecast to come in at £140.2bn in 2010/11, compared with the Office for Budget Responsibility’s forecast of £148.5bn.

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John Stokdyk's picture

Ooops - maybe not so low

John Stokdyk | | Permalink

We had barely processed this projection from the ITEM Club when another email arrived, this time noting lower than expected tax receipts in February that meant a downward adjustment in the PSBR cushion from £8bn to £6bn. Here's what ITEM Club economic advisor Nida Ali said:

  • February's increase in borrowing is a bit of a setback and is likely to limit the size of the Chancellor's war chest to £6bn from £8bn
  • VAT receipts continued rising but a decline in income tax receipts meant a fall in overall revenue
  • While we still expect public borrowing to undershoot the OBR's forecast we would be surprised if the Chancellor deviated from the existing plans in tomorrow's Budget

“February's increase in borrowing is a bit of a setback following last month's more encouraging figures, although borrowing over the financial year to date is still £13bn lower than last year. We estimate that these figures will limit the size of the Chancellor's war chest to around £6bn - from our earlier estimate of £8bn - but in terms of the bigger picture the situation is broadly the same.

“Consistent with earlier trends, VAT receipts continued rising (up by 17% in February compared to a year earlier). However there was some payback after last month's very strong income tax receipts, which meant that central government revenues fell by about 1%.

“Despite today's setback, we still expect net borrowing excluding financial interventions to undershoot the OBR's full-year projection of £148.5bn by about £6bn. It will be interesting to see whether the Chancellor in tomorrow's Budget uses this unexpected windfall to reduce the scale of fiscal retrenchment or holds it back for a rainy day. With the downside risks to growth intensifying and the ambitious borrowing targets set out for this financial year, we would be surprised if he deviates from the existing plans just yet."