Public borrowing in May was higher than forecast, and this fact left its mark on the efforts of the chancellor to cut the deficit. Overall, the month of May saw government borrowing pass £13 billion. This puts it almost 9% above the level seen at this point last year.
According to the Office of National Statistics, net borrowing activity by the public sector ultimately reached £13.4 billion in May of this year. Economists forecast much lower levels of borrowing, with the figure expected to only stand at around £9.35 billion. This puts the total deficit at £24.2 billion, which is up by 8.7% compared to twelve months ago.
According to the forecast of public sector borrowing from the Office of Budgetary Responsibility, public sector borrowing through the course of the 2014/2015 financial year was expected to stand at £96 billion. Some experts are questioning whether May’s figures might leave the treasury struggling to stick to its targets this year as it managed to do last year. A spokesperson, however, insisted that the figures for May were still “in line with the budget forecast.”
However, some experts remain sceptical. According to Samuel Tombs of Capital Economics: “May’s public borrowing figures contain tentative signs that the coalition may be beginning to struggle to bring down the deficit in line with the fiscal plans.” Tombs went on to say that the economic recovery, while “fairly strong,” is still “struggling to have much of an impact on the borrowing numbers.”
In attempting to explain borrowing figures that so far exceeded the expectations of experts, the Treasury in part blamed unusual receipts during the course of the month. In particular, they pointed to the Bank of England’s decision to transfer £3.9 billion of payments that due as interest on government bonds.
Government takings from income tax and national insurance receipts were also somewhat disappointing. In the month of May specifically, they were up by 0.3% compared to the same month in 2013. However, this was small consolation for the fact that total receipts for the year so far in terms of income tax and national insurance were overall down by 0.8%.
According to the Treasury, this was a result of individuals choosing to delay their bonus payments in 2013 until the tax cut for top rate payers took effect. As these people began taking their bonuses after the start of the new tax year, when the top rate fell from 50% to 40%, this resulted in higher tax receipts for April and May 2014.