Borrowing blow for UK ahead of Autumn Statement despite tax windfall

A tax windfall for the Treasury has arrived too late to save the Chancellor from a huge surge in borrowing in tomorrow’s Autumn Statement, experts warned today.

Philip Hammond received a crumb of comfort on the eve of his first set-piece event, as October borrowing of £4.8 billion was far less than expected, thanks to an £11.5 billion surge in VAT receipts.

This was the highest since the Office for National Statistics began collecting the figures nearly 20 years ago.

Corporation tax takings were up 23% to £9 billion — the best October performance for six years — helping overall receipts up nearly 7% on last year to a record £59.1 billion.

But departmental spending, pension payouts and debt interest has kept borrowing high, leaving the deficit for the seven months of the financial year so far at £48.6 billion. The figure is less than £7 billion below the £55.5 billion deficit forecast by the Office for Budget Responsibility fiscal watchdog for the entire year as recently as March’s Budget.

A significant overshoot now looks inevitable, tying the Chancellor’s hands over giveaways against the backdrop of a slowing economy since the EU referendum vote. Hammond (pictured) has scrapped his predecessor’s plans to run a surplus by 2020, promising a “fiscal reset”, although he has warned that the UK’s deficit burden is still “eye-wateringly” high. Forecasters predict an extra £100 billion in borrowing over the next five years.

Samuel Tombs, economist at Pantheon, said borrowing is on course to hit £68 billion this year — a £13 billion overshoot — if the present trend persists. “The Chancellor’s warning at the weekend that he is ‘highly constrained’ suggests there will be few sweeteners for the ‘JAMs’ — people who are ‘just about managing’ — in tomorrow’s Autumn Statement.”

Others warned that higher inflation and the recent sell-off in bond markets would raise the Government’s borrowing bill. IHS Global Insight’s Howard Archer added: “The public finances are likely to be hampered over the rest of the fiscal year and beyond by higher gilt yields lifting interest payments and higher inflation lifting costs.” He added that a marked slowdown in growth over the coming months “will take a toll on tax receipts”.

A Treasury spokesman said: “The Government is committed to fiscal discipline and will return the budget to balance over a sensible period of time, in a way that allows space to support the economy as needed.”

The UK’s overall debt burden rose to a record £1.64 trillion last month, equivalent to 83.8% of the nation’s overall economy.