The UK public deficit increased to £11.6 billion in August 2014 compared to £11 billion in August 2013, the Office of National Statistics informed on Tuesday, showing that the strong economic rebound is not reflected in the country’s public finances.
A small increase in tax receipts was more than offset by higher investment, interest payments and spending.
All independent forecasts point to a UK GDP expansion for 2014 of at least 3%. The UK Treasury says its compilation of a range of studies puts economic expansion at 3.1% for the year.
However, wages have not kept up with inflation, which itself is very low, partly explaining weak growth in income tax receipts.
Despite record employment numbers, income tax and national insurance receipts rose by just 1.6% year-on-year in August.
With pay increasing each year at about half the rate of inflation, British workers’ living standards have declined, despite impressive GDP growth. In next year’s general elections, the opposition Labour party will probably exploit this failing during their campaign.
Fiscal target will be hard to meet
With weak tax receipts, George Osborne, the Chancellor of the Exchequer, will find it hard to meet his fiscal targets for the year.
Not all tax receipts have been weak. Government income from corporate tax year-on-year rose 17%, while stamp duty (tax on house sales) income jumped 24%.
The UK independent fiscal watchdog – the Office for Budget Responsibility – had forecast that the treasury would borrow £86.6 billion this fiscal year (ending in March 2015). However, according to figures published by the Office for National Statistics, more than half of that amount (£45.4 billion) had already been borrowed by the end of August, just five months into the fiscal year.
Public sector net borrowing from April to August this year was £2.6 billion higher than in the same period last year.
The UK’s *national debt is £1.3 trillion, which is approximately 77% of GDP. In the last financial year the budget deficit was 5.9% of GDP. At the peak of the financial crisis the budget deficit hit 11% of GDP.
* A country’s national debt is how much its government and local authorities owe their citizens and foreign creditors.
Governments tend to spend more in the year leading up to a general election. Mr. Osborne is going to find that very hard to do.
Mr. Osborne said in his March statement that the government aimed to reduce government borrowing by £10 billion this fiscal year. That is definitely not going to happen.