TAXATION DEVELOPMENTS/DEVELOPMENTS IN TAXATION
Synopsis: The latest National Statistics data on public sector finances suggest that the Chancellor has some extra wriggle room as he prepares his second Budget of 2015.
Last Friday the Office for National Statistics (ONS) issued its latest bulletin on the state of public finances, the last that will appear before the 8 July Budget.
These included that the third estimate for 2014/15 government borrowing – strictly public sector net borrowing excluding public sector banks (‘PSNB ex’). This came in at £89.2bn, £1bn less than the estimate made at the time of the spring Budget. Nevertheless, a year’s borrowing equivalent to 4.9% of GDP is a reminder that when the Chancellor talks about legislating for permanent government surpluses during ‘normal times’, he is most definitely not talking about anything imminent.
Back in March, the 2015/16 PSNB ex was forecast to be £75.3bn by the Office for Budget Responsibility (OBR). The OBR will be updating its numbers for next month’s Budget: it will be interesting to see what changes it makes and how these are justified across such a short timescale.
One pointer to the adjustments that did emerge with the ONS statistics was the May monthly PSNB ex of £10.1bn. This was lower than economists had expected and £2.3bn less than for May 2014. Over the first two months of 2015/16 borrowing has reached £16.4bn, £5.0bn (23%) below the corresponding figure for last year. If that performance is maintained for the remainder of the year – a big if so early in the year – then the PSNB ex will come in at about £7bn less than the OBR’s forecast.
The statistics also contained some good news on income tax for the Chancellor. Receipts in May were up 5.3% year-on-year, whereas in May 2014 they were down 9.3% on May 2013 (a reflection of the distorting effect of the 5% reduction in additional rate tax in 2013/14). Poor growth in income tax receipts had been one of the puzzles of public finances, so perhaps matters are now returning to normal.
Given the relatively good numbers, it is possible that Mr Osborne will take the opportunity to even out his spending plans over the next few years. In March the head of the OBR, Robert Chote, openly criticised the Chancellor for plans that created ‘something of a rollercoaster profile’ over the duration of this Parliament. The picture was of a severe squeeze in 2016/17 and 2017/18 followed by an easing off in 2018/19 and a reversal to spending growth in 2019/20 – just ahead of the next election.
Mr Osborne seems to have the numbers falling in his favour at present, so that £12bn round of cuts to in-work benefits may be spread out over a longer period than is currently being anticipated.
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