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Philip Hammond was handed a surprise boost today when it emerged that the Government unexpectedly balanced its books in July for the first time in 15 years.
Better than expected public finance figures showed a small surplus of £184 million last month compared with a £308 million deficit in 2016, according to the Office for National Statistics.
A record surge in income tax receipts from employees who fill in self-assessment forms was largely responsible for tax receipts exceeding state spending for the first time in a July since 2002.
City economists said the windfall could give the Chancellor “wiggle room” for small-scale giveaways in November’s Budget.
Howard Archer, chief economic adviser to forecasters the EY ITEM Club, said: “Rising public dissatisfaction with austerity and on the public sector pay cap is exerting serious pressure on the Government to recalibrate fiscal policy in November’s budget, but it looks most likely that there will be limited adjustments to the fiscal approach rather than radical policy changes.”
However, there were warnings that the good news could prove a blip as growth continues to slow after the spike in inflation after the Brexit vote.
Simon French, chief economist at City brokers Panmure Gordon, said: ”Borrowing so far this year is almost £2 billion higher than at the same period last year. In March, the OBR forecast that borrowing would jump to £58 billion this year, the first reversal since 2012/13. Despite this welcome update, progress on reducing the UK deficit has stalled as the economy deals with the fallout from the vote to leave the EU.”
Britain has been struggling to fix its public finances since the budget deficit surged to 10 per cent of GDP in 2010 after the global financial crisis. Mr Hammond has said that he aims to close the deficit by the mid-2020s.
Government borrowing was £1.76 trillion at the end of July, 87.5 per cent of Britain’s GDP, compared with £1.61 trillion and 83 per cent of GDP a year ago.
Interest on the debt was £4.9 billion in July, up 18 per cent on a year ago. The Treasury has spent £21.6 billion on debt interest in the first four months of 2017/18 financial year, up 23.1 per cent on the same period in 2016/17.
A Treasury spokesman 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.”
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