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UK's Hammond hits budget deficit target helped by resilient economy since Brexit
April 25, 2017 / 8:40 AM / 5 months ago

UK's Hammond hits budget deficit target helped by resilient economy since Brexit

Britain's Chancellor of the Exchequer Philip Hammond speaks at the UK-India Fintech Conference in Mumbai, April 5, 2017. REUTERS/Shailesh Andrade/Files

LONDON (Reuters) - British finance minister Philip Hammond met his budget deficit target in the 2016/17 financial year, avoiding another fiscal slip-up after he was forced into a tax policy u-turn last month.

The shortfall in the public accounts in the 12 months to the end of March stood at 52.0 billion pounds, down nearly 28 percent from the previous year thanks in large part to the strength of the economy since the Brexit vote.

The figure was marginally above a forecast of a deficit of 51.7 billion pounds made the country’s budget watchdog, the Office for Budget Responsibility, in March.

However, the deficit figures are often revised heavily and the 300 million-pound overshoot is minimal given the overall size of Britain’s budget deficit.

The deficit was smaller than previous OBR forecasts including one made before Britain voted to leave the European Union last June.

At 2.6 percent of gross domestic product in the 2016/17 financial year, the deficit was in line with the OBR’s latest forecast.

The hole in Britain’s public finances has shrunk sharply since hitting a peak of nearly 10 percent of GDP shortly after the global financial crisis and it has now returned to its level from before the crisis.

An overshoot of the latest OBR forecast would have been another embarrassment for the government which is facing a national election on June 8.

Hammond was forced to reverse plans to raise payroll taxes for the self-employed in March after he was accused of breaking a commitment on taxes in the Conservatives’ 2015 election manifesto.

Last week, Hammond suggested he wanted the governing Conservative Party to drop the promise not to raise income taxes and social security contributions, saying they limited his flexibility to manage the economy.

In the month of March alone, the deficit was higher than expected at 5.1 billion pounds, up nearly 20 percent from the same month last year, the ONS said on Tuesday.

Economists taking part in a Reuters poll had predicted a shortfall of 3.2 billion pounds.

Hammond has said he wants to proceed more slowly than his predecessor George Osborne in turning the deficit into a surplus. Hammond is aiming to bring the figures back into the black during the first half of the 2020s.

Detailing March’s figures, the ONS said tax revenues and government spending - which are not adjusted for inflation - hit record highs.

Corporation tax revenues rose above their pre-crisis levels for the first time in a full financial year.

The increase in tax revenues reflected strong growth in Britain’s economy during 2016 which confounded forecasts of a quick and sharp hit from the decision by voters in June to leave the EU.

Reporting by William Schomberg and David Milliken;

Our Standards:The Thomson Reuters Trust Principles.
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