THE Government recorded the biggest surplus on its public finances for five years in January, but experts warned George Osborne would still miss this year’s borrowing targets after another blow to his deficit-busting plans.
The Chancellor was left nursing a £5.1 billion black hole after the Office for National Statistics (ONS) said not all of the funds transferred from the Bank of England’s economy-boosting programme were allowed to go to government coffers.
The ruling came just a day after the auction of 4G mobile airwaves raised £2.3 billion for the Treasury - far less than the £3.5bn estimated by the Office for Budget Responsibility (OBR).
The ONS said the Government recorded a net surplus of £11.4bn last month, compared with a surplus of £6.4bn a year earlier.
Economists fear January’s surplus will not be enough to prevent the Government overshooting its borrowing target and said Britain remained at risk of losing its coveted AAA debt rating.
However, the pound took heart from last month’s better-than-expected borrowing figures as it clawed back some of the ground lost in recent days on fears the Bank will take further action to bolster the economy.
Having fallen to its lowest level against the US dollar since July 2010 in Asian trading, sterling edged up to $1.53 and was nearly one per cent higher at 1.16 euro.
There was no such cheer in equity markets as the FTSE 100 Index slumped 1.6 per cent on worries that US policymakers will halt stimulus efforts after comments revealed in the minutes of the latest Federal Reserve meeting.
January’s bumper month for public finances came after a strong rise in tax receipts, while figures were also flattered by £3.8bn in interest from the Bank of England’s quantitative easing programme of asset purchases, which was included for the first time.
It was hoped that these Bank profit transfers would reduce the deficit by £11.5b in 2012/13, but the ONS said only £6.4bn could be used to reduce debt.
Figures for the first nine months of the tax year also disappointed as the ONS said public borrowing was £1.5bn higher than a year earlier at £93.8bn, when stripping out a one-off boost from the transfer of Royal Mail pension assets.
With less than a month to go before his Budget statement, Mr Osborne still faces a challenge in meeting the £108.5bn borrowing forecast from the OBR for 2012/13, which is down from around £120 billion in 2011/12.
A Treasury spokesman insisted the public finance figures showed an improving picture, adding they “underline what the Governor of the Bank of England said last week: the road ahead will be difficult, but the economy is on the right track”.
Last month’s borrowing surplus was helped by a seven per cent rise in total receipts, up £4.5bn to £65.8bn, with January traditionally a strong month for tax returns.
VAT receipts rose four per cent, while returns from income and capital gains tax also increased by four per cent, helping offset a fall in corporation tax.
Income tax is thought to have been helped by rising levels of employment in the UK, with figures yesterday revealing almost 30 million people were in employment at the end of 2012, the highest since records began in 1971, while jobseeker’s allowance claimants fell to a near two-year low.