UK public finances notch up first July surplus since 2002

The government ran the first July budget surplus in more than a decade last month, as Britain’s public finances recorded an unexpected leap back into the black with help from an increase in self-assessed tax payments.

Public sector net borrowing last month, excluding the nationalised banks, was in surplus by £184m, the first surplus in that month since 2002, the Office for National Statistics (ONS) said on Tuesday. City economists had expected the government to record a £1bn deficit.

Receipts from self-assessed income tax increased by £800m to £8bn last month, compared with July 2016, giving the government the highest level of July self-assessed tax receipts since it started recording these payments in 1999. While the increase reflects rising numbers of self-employed workers, January and July are typically busier months for self-assessed returns.

Howard Archer, chief economic adviser at EY Item Club, said the figures were a welcome boost for the chancellor, Philip Hammond, who now had a “very decent chance” of undershooting his 2017-18 fiscal target.

“While a struggling economy and higher interest debt payments look likely to hamper the public finances over the coming months, the chancellor does look to have a very good chance of having some wiggle room in November’s budget,” he said.

However, Britain is still in the red for the current financial year, as public sector net borrowing excluding state-owned banks increased by £1.9bn to £22.8bn in the four months to July, compared with a year ago.

Analysts at Capital Economics expected the improvement last month to be a “temporary blip”. “Despite July’s strength the chancellor may still find that he has little scope for any easing back on the planned fiscal squeeze in his November budget,” said Ruth Gregory, UK economist.

The Office for Budget Responsibility, the Treasury’s independent forecaster, expects £58.3bn of public sector borrowing during the current financial year, an increase of £13.2bn on the year ending March 2017. That borrowing, excluding the banks, equated to 87.5% of GDP at the end of July, according to the figures.

The borrowing figures come amid rising dissatisfaction with austerity. The chancellor faces increasing pressure to lift the cap on public sector pay, though he may have limited room for manoeuvre if he sticks rigidly to the government’s deficit reduction plan.

Hammond has stated that he remains committed to the fiscal rules he set out at the autumn statement, which aim to lead to a balanced budget by the mid-2020s.

A spokesperson for the Treasury said: “We are making good progress in strengthening our public finances and living within our means. Our national debt, at £65,000 for every UK household, is still too high. That is why we have a clear fiscal plan to reduce our debts and build a stronger economy for every household.”