Today the Office for National Statistics and HM Treasury published Public Sector Finances October 2011. We now have details of central government receipts, central government spending, public sector net investment, borrowing and debt for the first seven months of financial year 2011-12.

Rowena Crawford, a Research Economist at the IFS, said:

"October is a big month for corporation tax receipts so today's figures, which show that these were lower than in the same month last year, will be disappointing for Mr Osborne as he prepares for next week's Autumn Statement. These weak corporation tax receipts have contributed to an overall picture of lower than expected growth in tax revenues so far this year. Despite this, borrowing has so far this year been broadly in line with the official forecasts for the year as a whole because spending on the administration and delivery of public services has been more subdued than forecast for the year as a whole.

A key judgement for the Office for Budget Responsibility in forming their forecasts next week will be deciding which, if any, of these trends are set to continue. A pickup in spending on public services this year would, if combined with continued weak growth in receipts, lead to borrowing in 2011-12 exceeding the OBR's March 2011 Budget forecast. More importantly a clear risk for future years is that tax receipts continue to underperform while spending departments do manage to exhaust their extremely tight allocations.

There is some flexibility to absorb this potential bad news while still meeting the Government's fiscal mandate, which relates to the gap between receipts and non-investment spending expected at the end of the forecast horizon. First, the Chancellor's previous forecasts contained some margin for error. Second, additional borrowing caused by what is judged to be temporary weakness in the economy is allowed. Third, next week the forecast horizon will be automatically extended by one more year to 2016-17 so any additional fiscal tightening need not be implemented until after the next general election."

Headline Comparisons

• Central government current receipts in October were 4.1% higher than in the same month last year. Receipts over the seven months April to October 2011 were 5.1% higher than in the same months of 2010. The OBR forecast at the time of the March 2011 Budget implied that central government current receipts would grow by 6.9% over the whole of 2011−12. The growth in receipts so far this year looks artificially weak because of the different timing of two bank taxes - the temporary Bank Payroll Tax generated receipts in April 2010 while receipts from the new Bank Levy only started to come in from July 2011. Although taking these into account improves the picture somewhat, underlying growth in receipts so far this year is still below what the OBR's forecast suggests for the year as a whole.
• Central government current spending in October was 1.1% higher than in the same month last year. Spending between April and October was 2.5% higher than in the same months of 2010. The OBR's forecast at the time of the March 2011 Budget implied that central government current spending for the whole of 2011-12 would be 3.6% above 2010-11 levels.
• Public sector net investment in October was £2.0bn, £0.9bn lower than in October 2010. Together, public sector net investment between April and October 2011 has been £10.0bn, which is 39% lower than in the same seven months of 2010. The OBR's forecast at the time of the March 2011 Budget predicted that net investment in 2011-12 would be £31.8bn, which is 17.7% below last year's level.

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