Job Search

UK deficit falls to 96bn after drop in unemployment and higher tax receipts


Falling unemployment and higher tax receipts helped the government cut the annual deficit in December, according to the latest official figures.

The Office for National Statistics said net borrowing, excluding the temporary effects of bank rescues and the Royal Mail pension fund transfer, was £12.1bn in December, £2.1bn lower than the figure recorded a year ago.

In the eight months to December the total annual spending deficit was £96.1bn, which was £4.8bn lower than the same period in 2012/13.

Analysts said the government was being rewarded for overseeing a growing economy, though the major benefits from rising income tax and national insurance receipts will be felt as the year progresses.

The gentle decline in the UK government's annual overspend contrasts with most continental European countries where cuts have been deeper and annual deficits reduced at a faster pace.

Under pressure from Brussels, Spain, Ireland and Greece have implemented steep cuts to meet Maastricht commitments limiting annual overspends to below 3% of GDP.

Spain is scrabbling to meet a deficit target of 3.7% by the end of the financial year while the UK's is likely to still be above 6%.

The total level of public sector net debt was £1.25tn at the end of December 2013, equivalent to 75.7% of GDP.

Some economists have welcomed the government's reticence to make steeper cuts in response to the higher welfare spending and reduced tax receipts that followed flatlining growth since 2010.

Capital Economics said the government's deficit cutting plan was on target after three years of false starts.

"December's deficit takes underlying borrowing in the fiscal year to date to £96.1bn, almost 5% down on the same period in 2012/13. Given that the OBR forecast underlying borrowing to fall by 3% this year, the fiscal squeeze is on track, for now," it said.

Chris Leslie, shadow chief secretary to the Treasury, said the government was on course to borrow £200bn more than it forecast when it took office in 2010. "These figures confirm that David Cameron and George Osborne are set to break their promise to balance the books by next year. This is the cost of the three damaging years of flatlining and falling living standards we have seen since the election."

He added that low tax receipts following the long period of low growth, the underpricing of Royal Mail prior to its flotation and the failure to secure a beneficial tax deal with Swistzerland had made the situation worse. "These figures also show the government's Swiss tax deal has raised less than a quarter of the revenues promised – just £800m so far, compared to the £3.45bn pledged by George Osborne," Leslie said.

The Office for Budget Responsibility, the Treasury's independent forecaster, said that with three months left of the financial year it was still uncertain whether the government would hit its borrowing targets.

It said: "Even at this relatively late point in the year, the 2013-14 public sector net borrowing forecast remains uncertain. Tax receipts will depend in part on the performance of the economy over the remainder of the year, but there are additional uncertainties, such as the tax expected from financial sector bonuses and the extent to which receipts from self-assessment income tax are affected by the reduction in the additional rate of income tax to 45p."

It said it remained unclear how much Whitehall departments would spend before the end of the year. "Central and local government monthly expenditure outturns are also prone to revision well after the end of the financial year."

Return to news section