Local authority spending cuts help government to borrow less in June

Lower spending by local authorities provided George Osborne with a boost last month by cutting the amount the government needed to borrow to balance taxes and spending by almost £1bn to its lowest June total in seven years. Official figures showed public sector net borrowing – the Treasury’s preferred measure of the deficit – stood at £9.4bn in June, down £800m on the same month in 2014.

Despite a smaller cut in borrowing last month than the City had been predicting, analysts said Osborne was on course to hit his deficit target of £69.5bn for the entire 2015-16 financial year. The independent Office for Budget Responsibility (OBR) said the June total was £700m above market expectations, with strong tax receipts offset by rising spending by Whitehall. Local government spending was £1bn lower than a year earlier.

The OBR said tax receipts in the first three months of 2015-16 were up 5.7% on last year, a better performance than was forecast in Osborne’s summer budget. It said income tax and national insurance contributions from the business services, financial and construction sectors had been strong, but added that the impact of weaker oil prices on corporation tax receipts from the North Sea would show up next month, while fines imposed on the City had boosted revenues by £500m in April and May.

Government borrowing peaked at more than £155bn in the wake of the deep recession of 2008-09 and progress on reducing the deficit has been slower than the chancellor anticipated when he arrived at the Treasury five years ago. In 2014-15, borrowing stood at £88bn, £50bn more than was forecast in 2010.

A Treasury spokeswoman said: “The figures show that our deficit reduction plan is working, with cumulative borrowing over £6bn lower than at this point last year. We have more than halved the deficit, but with debt over 80% of GDP the job is not done.”

Frances O’Grady, general secretary of the TUC, said: “The chancellor keeps shifting the goal posts on government borrowing, but over this financial year he is expected to borrow three-and-a-half times more than expected to bail out his failed economic plan – that’s £70bn instead of £20bn.”

Samuel Tombs, UK economist at Capital Economics, said: “We do not think that June’s borrowing figures should ring any alarm bells yet. Nonetheless, they provide a timely reminder that the fiscal consolidation has a long way to go before the public finances are back to a sustainable position.”