|Date:||22 November 2011|
|Authors:||Rowena Crawford , Carl Emmerson and Gemma Tetlow|
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."