Public finance bulletin: February 2013

Today the Office for National Statistics and HM Treasury published Public Sector Finances January 2013. We now have details of central government receipts, central government spending, public sector net investment, borrowing and debt for the first ten months of financial year 2012−13.

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

“As the Chancellor prepares for his Budget next month, he will likely be disappointed by today’s public finance figures. January is an important month for receipts but, although growth in income tax receipts was strong, this was partially offset by very weak growth in corporation tax receipts. Together this leaves tax receipts running below the growth forecast for the year as a whole. Spending continues to run higher than forecast, due to strong growth in spending on both welfare benefits and on the delivery and administration of public services. As a result borrowing is now on course to be almost £7 billion higher this year than the OBR forecast in December. Therefore borrowing is more likely to be slightly higher rather than slightly lower than last year’s level, although much uncertainty remains and things could still change in the final two months of the year.

What matters more than the level of borrowing this year is the outlook for revenues and spending in the medium term. Some of the extra borrowing so far this year is due to Whitehall departments underspending by less than assumed. This may not persist and therefore might not concern the Chancellor – in particular if the money is being spent well. Potentially more concerning is the low growth in tax receipts and the high growth in spending on welfare benefits: were these to persist into future years then the large planned fiscal tightening might need to be increased.”

Headline Comparisons

• Central government current receipts in January were 1.1% higher than in the same month last year. The Office for Budget Responsibility’s (OBR) latest Economic and Fiscal Outlook forecast an increase in receipts relative to last year’s levels of 1.1% for the year as a whole and of 2.4% for the period from November 2012 to March 2013 (excluding the impact of financial transactions relating to the Asset Purchase Facility). The latest figures show an increase relative to last year’s level of 0.5% for the year to date, with an increase of 1.2% when November 2012 to January 2013 are compared to the same three months last year.

• Central government current spending in January was 4.1% higher than in the same month last year. The OBR’s latest forecast implies an increase relative to last year’s level of 2.4% for the year as a whole and of 2.7% for the period from November 2012 to March 2013. The latest figures show an increase relative to last year’s level of 2.7% for the year to date, with an increase of 4.0% in November 2012 to January 2013 compared to the same three months in 2011–12.
• Public sector net investment in January was £3.5bn, £0.1 billion more than was spent in January 2012. Public sector net investment between April 2012 and January 2013 has been £17.8bn (excluding the impact of the transfer of assets from the Royal Mail Pension Plan to the public sector), which is 0.9% lower than in the same ten months of 2011–12. The OBR’s latest forecast was that net investment in 2012–13 would be £21.8bn (adjusting for the impact of financial transactions relating to the Asset Purchase Facility and Royal Mail, and the reclassification of the SLS payment as a current receipt), which is 24.0% below last year’s level.