U.K. Budget Deficit Narrows As Property Recovery Boosts Taxes
22 October 2013
Posted by: Author: Svenja O’Donnell
Author: Svenja O’Donnell (Bloomberg)
Britain’s budget deficit narrowed
more than economists forecast in September as the housing-market
recovery boosted stamp duty and higher spending lifted value-added tax.
Net borrowing excluding temporary support for banks was
11.1 billion pounds ($18 billion) compared with 12.1 billion
pounds a year earlier, the Office for National Statistics said
in London. The shortfall was less than the 11.3 billion-pound
median forecast in a Bloomberg survey of 22 economists. Tax
receipts rose 7 percent, the most since June, and spending
climbed 2.5 percent.
Britain’s economic recovery has brought a resurgence in the
housing market, putting Chancellor of the Exchequer George
Osborne on course to undershoot his borrowing targets this year.
The improvement may mean the government can sell fewer gilts
this year than it projected in April.
"Evidence of decent economic activity increases the
chancellor’s chances of undershooting his fiscal targets even
allowing for he fact that there may be a lagged impact of
stronger growth n the public finances,” Howard Archer, an
economist at IHS Global Insight in London, said before the data
In the six months through September, net borrowing narrowed
to 56.7 billion pounds from 62.6 billion a year earlier, raising
the prospect that Osborne could undershoot the 120 billion
pounds projected in March. The Office for Budget Responsibility
is due to announce new forecasts Dec. 4.
If the momentum is kept up, net borrowing could fall to
about 105 billion pounds this year instead of the 120 billion
The figures exclude coupon payments from the Bank of
England’s Asset Purchase Facility and the 28 billion-pound
transfer of Royal Mail Group Ltd. pension assets in April 2012.
The increase in tax income was driven by stamp duty on
property purchases, which grew 254 million pounds compared with
a year earlier, and VAT, which rose by 386 million pounds, the
Osborne has reduced the deficit from a postwar high of 11
percent of GDP when he took office in 2010 to 7.4 percent last
fiscal year. The chancellor has pledged to run a budget surplus
by 2020, implying that austerity will continue beyond the
current 2018 forecasting horizon.
In September, the Treasury received 4 billion pounds from
the Bank of England’s gilt holdings and 3.2 billion pounds from
the sale of a 6 percent stake in Lloyds Banking Group Plc. The
proceeds boosted cash measures of the public finances but not
Central government, which excludes state-owned banks,
posted a cash requirement of 13.2 billion pounds last month.
Planned debt sales are based on this measure and also take
account of the cost of redeeming maturing gilts during the year.
With the economy accelerating, the Debt Management Office
will probably sell 153 billion pounds of gilts in the year
through March 2014, instead of the 155.7 billion pounds it
forecast in April, and issue a similar amount the following
year, according to George Buckley, chief U.K. economist at
Deutsche Bank in London.
Proceeds from the initial sale of shares in Royal Mail
Group this month will be recorded in October at some stage, the
This article first appeared in bloomberg.com.