George Osborne has received a post-Budget boost after official figures showed a sharper-than-expected fall in borrowing, putting him on course to beat public finance targets before the general election in May.
Excluding the distorting effect of bank bail-outs, borrowing fell to £6.9 billion last month, £3.5bn lower than in February last year, the Office for National Statistics (ONS) said.
However, the ONS was also forced to revise up the national debt after admitting an embarrassing £5.5bn miscalculation over the UK government’s bailed-out bank assets.
February’s borrowing figures mean the year-to-date the figure is £81.8bn, 9.7 per cent lower than last year, appearing to leave the Chancellor well on course to meet the updated target – implying an 8.4 per cent cut in the deficit for the current fiscal year to the end of this month.
The independent Office for Budget Responsibility (OBR) reduced its borrowing target for 2014-15 to £90.2bn in its latest forecast published alongside the Budget on Wednesday.
Treasury coffers have been boosted over January and February by a £1.9bn increase in self-assessment tax receipts compared to the same two months last year – thought to be partly the result of tax rate changes.
Income tax receipts for the first 11 months of the financial year rose to a record £153.9bn, up £7.1bn the same period on a year before.
There was a setback for public finances in yesterday’s figures, however, as the ONS was forced to revise upwards public sector debt by £5.5bn to correct previously published estimates.
Earlier data had wrongly double-counted bank deposits held by the government’s UK Asset Resolution body, which holds assets from Bradford & Bingley and Northern Rock. But the net effect on debt was partially offset by revisions to Treasury liabilities relating to Network Rail, meaning the increase was £2.7bn.
The changes come after the OBR earlier this week forecast debt as a share of GDP to be falling by 2015-16, a year earlier than expected. Underlying debt last month stood at £1.468 trillion, or 79.6 per cent of GDP, up from 78.4 per cent a year ago.
A Treasury spokesman said: “The plan is working: the deficit is halved as a share of the economy and the OBR’s latest forecasts show borrowing continuing to fall in every year with debt falling a year earlier in 2015-16. But we are still borrowing £1 for every £10 we spend and have more to do.”
Samuel Tombs, senior UK economist at Capital Economics, said: “With one month of this fiscal year still to go, borrowing looks set to come in at about £89bn, nearly £10bn lower than last year and a touch below the OBR’s forecast of £90.2bn in the Budget. And looking ahead, we think that there is scope for borrowing to come down at a faster rate than the OBR expects over the coming years too as the official forecasts continue to be based on some pessimistic forecasts for GDP growth.
“Nonetheless, any growth dividend is unlikely to make a major difference to the scale of the fiscal squeeze implemented over the next year or two.”