UK budget back in the black

21-05-2007

UK budget back in the black
The public sector purse showed a surplus in April as a growth in value-added tax (VAT) payments helped shift the UK's finances back into the black during the first month of the new fiscal year.

Figures released by the Office for National Statistics (ONS) showed a surplus of £0.2 billion on the current budget, compared to a deficit of £0.9 billion in April 2006.

Meanwhile public sector net borrowing, the Treasury's preferred measure of the state of the country's finances, stood at £1.1 billion, less than that predicted by analysts and lower than the £2.8 billion recorded in April 2006.

The improvement was largely driven by a 10.6 per cent rise in VAT receipts, which in April totalled £8.5 billion – the second highest level on record since the tax was introduced in 1973.

Higher consumer spending was cited as one reason for the increase by the ONS, which also stressed that back repayments of VAT had fallen – interpreted by analysts as a sign that government efforts to tackle VAT fraud may be paying off.

Nonetheless public sector net debt as a percentage of gross domestic product (GDP) climbed over the year to 37 per cent by the end of April.

Net debt stood at £497.7 billion, compared to £462.3 billion at the end of April 2006 when it represented 36.2 per cent of GDP.

Some commentators believe that the budget surplus reported for last month will boost the standing of chancellor Gordon Brown as he prepares to succeed Tony Blair as prime minister and raises hopes that he will achieve his "golden rule" of balancing the budget for the current economic cycle.

In his March budget speech Mr Brown indicated that the golden rule, which states that government expenditure must be paid for by tax revenues, would be met to the tune of £11 billion.

But some analysts that the next Labour administration will have to curb public sector spending in order to get the nation's finances on track.

"The government will fight the next general election against the backdrop of a prolonged public spending squeeze, requiring the government to either do less, or do it more cheaply, or sell large amounts of assets," said Citigroup's chief UK economist Michael Saunders.



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