UK public finances start new tax year on strong footing

LONDON(Reuters) – Britain’s government kicked off the new financial year with a smaller than expected budget deficit in April, according to data that also showed less borrowing than first estimated in the previous year.

The deficit in April stood at 7.840 billion pounds, compared with 8.953 billion pounds a year ago, the Office for National Statistics (ONS) said. A Reuters poll of economists had pointed to a reading of 8.6 billion pounds.

The ONS also cut its estimate for the deficit over the entire 2017/18 financial year, excluding public sector banks, by 2.1 billion pounds to 40.487 billion pounds.

The deficit for 2017/18 now stands at 2.0 percent of gross domestic product — the smallest budget deficit as a share of GDP since 2001/02.

In March, Britain’s official budget forecaster said it expected the shortfall between how much the government spends and how much it earns from tax revenues to fall to 37.1 billion pounds in the current 2018/19 year, equivalent to 1.8 percent of GDP.

Britain has made more progress on improving the public finances than government forecasters expected because the economy slowed less than feared after the 2016 Brexit referendum shock.

The deficit stood at 9.9 percent of GDP when finance minister Philip Hammond’s predecessor, George Osborne, took power in 2010 and started a multi-year program of public spending cuts.

Hammond wants to run an outright budget surplus by the mid-2020s, in order to cut the national debt faster. Britain’s Conservative government thinks public sector debt, as a share of GDP, is too high to easily support a big rise in spending during a future deep recession.

Public debt, excluding public sector banks, stood at 1.777 trillion pounds, or 85.1 percent of GDP.

The ONS said it had chopped its estimate of public sector net debt on this measure by 18.5 billion pounds, or 0.9 percentage points of GDP, as of the end of March, owing to previous data errors and new data.

The headline public sector net debt figures is inflated by the a temporary Bank of England lending stimulus scheme which is due to be repaid this year — something which makes a near certainty of Hammond’s goal to lower debt as a share of GDP.

He faces tough choices in the coming years after promising to relax his grip on public pay at a time when he is also facing calls to spend more on health and other services.

However, Hammond has suggested he could announce more spending in his budget in November.

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