Today’s ONS figures do little to dispel worries about the position of public finances emerging from last month’s release. The data confirms that at the current trajectory the Chancellor is set to miss his £95.5bn deficit target for the year by quite some margin. What do the figures say?
Today’s ONS figures show a further worsening of public sector finances:
- Public sector net borrowing excluding public sector banks from April to September 2014 was £58.0 billion, an increase of £5.4 billion compared with the same period in 2013/14.
- Public sector net debt excluding public sector banks was £1,451.3 billion (79.9% of GDP) in September 2014, an increase of £100.7 billion compared with September 2013.
- Central government expenditure in September 2014 was £56.4 billion, an increase of £2.9 billion, or 5.4%, compared with September 2013.
- Central government receipts for the financial year-to-date 2014/15 were £287.1 billion, a decrease of £1.0 billion, or 0.4% than in the same period in 2013/14.
The figures mean that the Chancellor is now even further away from meeting his 2014 targets for deficit reduction. At the current rate, public borrowing could come at almost £115bn, somewhat £20bn above target.
But why have public finances failed to recover despite relentless public spending cuts?
It’s all about income tax
The biggest squeeze on public sector finances stems from lower revenues on income tax. Income tax receipts have remained subdued despite the labour market’s stellar performance. Sluggish wage growth – and therefore income tax – is depressing the largest source of income on the Government’s balance sheet.
This could prove to be a double headache for Osborne as wages inconveniently feed in to two key debates on the UK economy – the deficit and living standards. A bump in tax revenues from the self-employed in January is unlikely to tip the scales the Osborne way.
Robert Chote, chairman of the OBR, said that the Chancellor will miss his income tax targets given weak wage growth and the concentration of workers on low-paid jobs. Compounded with the promise of further tax cuts in his conference speech the Chancellor will have his work cut out for him.