Public Finance Press Releases

IFS public finance bulletin: May 2015

Date: 22 May 2015
Authors:
Publisher: Institute for Fiscal Studies

Today the Office for National Statistics and HM Treasury published Public Sector Finances April 2015. We now have details of central government receipts, central government spending, public sector net investment, borrowing and debt for the first month of financial year 2015–16 and revised outturns for the whole of financial year 2014–15.

Soumaya Keynes, a Research Economist at the IFS, said:

"With only data from April, we cannot yet say much about the public finances for the whole of the current financial year. Despite this, the figures do give George Osborne two things to be pleased about.

"First, in a month when a hefty chunk of corporation tax revenues are received, growth in this source of revenues has been impressive. It is up by 11.3% – or £0.6 billion – in April compared to the same month last year. This is strong compared to a slight nominal fall in corporation tax receipts the Office for Budget Responsibility forecast for the financial year as a whole.

"Second, the latest outturn for borrowing in the last financial year remains slightly lower than the Office for Budget Responsibility expected back in March.

"The apparent improvement is not enough to change the big-picture public finances story – borrowing remains high by historical and international standards, and the Chancellor’s aspiration to achieve an overall budget surplus by 2018–19 without significant net tax increases will require hefty spending cuts."

Headline Comparisons

  • The public sector current budget in 2014–15 is estimated to have been in deficit by £56.9bn. This is exactly the same as the initial estimated outturn published last month and somewhat lower than the Office for Budget Responsibility’s (OBR’s) forecast from the March 2015 Budget of a £59.8bn deficit. The OBR’s March 2015 forecast is for the public sector current budget deficit to fall to £45.7bn this financial year.

  • Public sector net borrowing in 2014–15 is now estimated to have been £87.7bn, around £0.3bn higher than the initial estimated outturn published last month, but lower than the £90.2bn forecast by the OBR in the March Budget. The OBR’s March 2015 forecast is for the public sector to borrow £75.3bn this financial year. Borrowing in April 2015 was £6.8bn, which is £2.5bn lower than in April 2014.

  • Public sector net debt at the end of 2014–15 is now estimated to have been £1,484bn, or 80.4% of national income. The OBR’s March 2015 forecast is that this will fall to 80.2% by the end of this financial year.

  • Central government current receipts were forecast to increase by 3.0% between 2014–15 and 2015–16 by the OBR in its March 2015 Economic and Fiscal Outlook, adjusting for the effects of the Asset Purchase Facility. Growth in receipts in April 2015 compared to the same month last year was slightly higher than this, at 3.4%. This higher-than-average expected growth was largely driven by strong growth in Corporation tax and VAT. With 11 months left of the financial year still to come, these data do not provide much indication as to whether the OBR’s forecast for the year will prove to be an under- or over-estimate.

  • Central government current spending in April was 7.1% lower than in April last year, in contrast to the 1.1% increase forecast by the OBR for the year as a whole. This fall was largely driven by changes in the timing of grants paid to local government which will unwind later this year. This will unwind as the year progresses.  

  • Public sector net investment in April was £0.5bn, £0.3bn less than was spent in April 2014. The OBR’s forecast at the time of the March 2015 Budget was that net investment over the whole of 2015–16 would be £29.5bn, 3.9% below last year’s level.

Further Analysis

Little can be inferred or extrapolated about the public finances in 2015–16 from information about only the first month of the financial year. Bearing this in mind, the figures for receipts and spending in April 2015 show:

Central government current receipts

Receipts from Income Tax, Capital Gains Tax and National Insurance Contributions for April 2015 were 3.5% higher than in the same month last year. The OBR’s March 2015 forecast implies that receipts from these taxes will pick up over the rest of the year, growing by 4.0% over the whole of 2015–16.

Cash receipts of Corporation Tax in April 2015 were 11.3% higher than in the same month last year. April is one of the four months in the year when a substantial proportion of Corporation Tax payments are made, so the strong performance of Corporation Tax is good news, particularly relative to the OBR’s March 2015 forecast for the year as a whole of a fall of 0.5%. According to the OBR, this strong performance was down to increases in profits of the financial and life assurance sectors, by enough to offset the cut to the main rate of corporation tax from 21% to 20%.

VAT receipts in April 2015 were 3.4% higher than the same month last year. This is a larger increase than expected in the OBR’s March 2015 forecast for the year as a whole, which implies that VAT receipts will grow by 2.6% over the whole of 2015–16.

Central government current spending

Expenditure on net social benefits was 1.1% lower in April 2015 than in April 2014. The OBR’s latest forecast implies that central government net social benefit expenditure will grow by 1.0% over 2015–16.

Spending on debt interest was £5.0bn in April 2015, £0.4bn lower than was spent in April 2014. The OBR’s forecast from the time of the March 2015 Budget was that debt interest spending over the whole of 2015–16 would be £46.1bn.

Other current spending by central government, including spending on the delivery of public services, was 9.5% lower in April 2015 than in April 2014. The OBR’s March 2015 forecast implies that this component of spending will grow by 1.3% over the year as a whole. This difference is largely as a result of a change in the timing of grants to local government, as mentioned above.

Further information and contacts

For further information on today’s public finance release please contact: Soumaya Keynes or Carl Emmerson on 020 7291 4800, or email soumaya_k@ifs.org.uk or carl_e@ifs.org.uk.

Next month’s public finances release is due to be published on Friday 19th June. The first budget of this parliament is scheduled for Wednesday 8th July.

Relevant links:

This, and previous editions of this press release, can be downloaded from http://www.ifs.org.uk/publications/pf

Office for National Statistics & HM Treasury, Public Sector Finances, April 2015: http://www.ons.gov.uk/ons/rel/psa/public-sector-finances/april-2015/index.html

Office for Budget Responsibility analysis of monthly Public Sector Finances, May 2015: http://budgetresponsibility.independent.gov.uk/category/topics/monthly-public-finance-data/

Useful links and background information on Budget 2015 can be found at: http://www.ifs.org.uk/tools_and_resources/budget/502

Office for Budget Responsibility, Economic and Fiscal Outlook, March 2015: http://budgetresponsibility.org.uk/economic-fiscal-outlook-march-2015/

HM Treasury Budget 2015: https://www.gov.uk/government/topical-events/budget-2015

IFS Green Budget, February 2015, containing in-depth public finance analysis, can be found at: http://www.ifs.org.uk/publications/7530 

Notes to Editors:

All figures are on a basis that excludes the impact of the public sector banks.
Central government current spending includes depreciation.
Where possible we compare figures on an accruals basis with the Office for Budget Responsibility forecast.