Philip Hammond gets a £10 billion boost for Budget spending after fall in borrowing

Chancellor Philip Hammond will have at least £10 billion in extra firepower to meet Government spending pledges after the lowest borrowing since 2002, official figures signalled on Friday.

The boost for Hammond comes 10 days ahead of a Budget in which he will come under pressure to find an extra £20 billion a year for the NHS and make good on Theresa May’s recent Conference pledges of an “end to austerity”.

The best September for the public coffers since 2007 saw borrowing of £4.1 billion, nearly half a billion lower than expected. For the first half of the financial year, cumulative borrowing is £19.9 billion, the lowest for 16 years and £10.7 billion below a year ago.

EY Item Club senior economic adviser Howard Archer said the figures “give him some much-needed room for manoeuvre in November’s Budget”. He added: “Even so, it looks like he will still need to raise some taxes (or reduce tax relief in some areas) to help finance the increased NHS spending.”

The financial fillip comes from rising Government revenues, due to strong growth in income tax and VAT receipts more than offsetting stamp duty revenues spluttering in a weak housing market. The tax take has been bolstered by unemployment at a 43-year low of 4% and a World Cup summer boosting retailers. On the spending side, departmental spending is growing more slowly and lower inflation has meant more than £3 billion less paid out in interest on the Government’s index-linked debts so far.

The Treasury’s official watchdog, the Office for Budget Responsibility, is likely to slice around £11 billion off its March borrowing forecasts of £37.1 billion in its latest assessment. But the Chancellor is unlikely to sanction a full-scale giveaway amid nerves over the impact of Brexit on the economy. And despite a loosening of the purse-strings for the NHS, the Institute for Fiscal Studies warned this week that unprotected departments could still face a £15 billion budget crunch.

Pantheon UK economist Samuel Tombs said Hammond could meet his target of cutting the underlying deficit below 2% two years early, “implying that the Chancellor has no need to stick to his Spring Statement plans which envisaged more fiscal tightening in 2019/20 and 2020/21”.

The figures also showed the UK has a debt pile of £1.79 trillion — 84.3% of the economy, down 2.4 percentage points on a year ago.