By Azad Zangana, Senior European Economist, comments on the UK public finance figures released today:
The UK's public finances got off to a good start in the new financial year.
Public sector net borrowing, excluding the banking groups, was £6.8 billion in April, £1.5 billion below City consensus expectations and 26.9% lower than borrowing in April 2014.
Higher employment, a steady rise in wages, and an overall stronger economy have all helped to boost government tax revenues, as evident from the 3.4% increase in VAT receipts over the past year. However, the bulk of the reduction in borrowing has come from austerity through spending cuts. Tax receipts in total increased by £1.4 billion or 2.7% over the year, but spending has fallen by £4.6 billion or 7.4%. Interestingly, despite the cut in government expenditure, public sector investment continues to rise with day-to-day departmental spending reporting the biggest falls.
The latest budget deficit is the lowest recorded for the month April since 2008, suggesting the public finances are recovering from the worst effects of the global financial crisis. The latest figures will be welcomed by the Chancellor who is keen to continue the momentum built in cutting back public expenditure. The forthcoming summer budget (8th of July) is likely to outline the headline figures for expenditure limits ahead of a spending review, likely to take place by the end of the year. At the same time, the Chancellor may have found some room to offer tax cuts to ease the pain of almost 5% of GDP worth of planned austerity.