Public finance bulletin: June 2014

Today the Office for National Statistics and HM Treasury published Public Sector Finances May 2014. We now have details of central government receipts, central government spending, public sector net investment, borrowing and debt for the first two months of financial year 2014–15.

Headline Comparisons

• Public sector net borrowing in May was £13.3bn, £4.6bn higher than in the same month of last year. However, excluding cash flows relating to the APF, this difference falls to £0.7bn, and underlying borrowing actually fell slightly when we take into account that in May 2013 receipts experienced a one-off boost of £0.9bn from the Swiss Tax agreement. Also on this basis, borrowing for the first two months of this financial year is higher than the average growth for the year forecast by the Office for Budget Responsibility (OBR) in the March 2014 Budget. The increase in borrowing of 4.5% compared to the same two months last year compares unfavourably to the forecast for the year as a whole, of a fall of 11.5%. However, with ten months of the financial year left, there is still not enough evidence to suggest that borrowing will necessarily turn out to be significantly different from the OBR’s forecast.
• Central government current receipts in May were 3.3% higher than in the same month last year, excluding the impact of transfers related to the Asset Purchase Facility and receipts from the Swiss Tax agreement. This monthly growth has offset the fall in receipts seen last month, such that receipts in April and May together were 1.5% higher than in the same months of 2013. Growth in receipts over the rest of the year will need to pick up if the OBR’s March 2014 forecast of 5.4% growth for the year as a whole is to be correct. There is good reason to think that they will – receipts in 2013–14 were particularly concentrated in the earlier months of the year, as some high income individuals responded to the reduction in the top rate of income tax that happened in April 2013. As the profile of receipts returns to ‘normal’, we can expect the growth in receipts to increase.
• Central government current spending in May was 0.4% higher than in the same month last year. This slightly offset the fall in spending seen last month, though taking the first two months of this financial year together, spending has been 0.6% lower than in the same months of 2013. This is lower growth in spending than the 2.0% increase forecast by the OBR in March for the year as a whole.
• Public sector net investment in May was £1.5bn, £0.5bn more than was spent in May last year. Together, public sector net investment during April and May 2014 has been £2.8bn. This is £0.5bn higher than over the same months in 2013. The OBR’s forecast at the time of the March 2014 Budget predicted that net investment over the whole of 2014–15 would be £27.9 billion, which is 12.8% above last year’s level (£3.2bn).