Government likely to exceed budget target by £8bn this year

The government is on course to overshoot its budget target by at least £8bn this year after extra spending on the NHS and preparations for a no-deal Brexit cut the surplus in July.

The public finances were down by £2.2bn compared with July 2018 to leave a £1.3bn surplus last month. The decrease was almost entirely accounted for by rises in central government spending, much of it on staff salaries, as Whitehall departments stepped up hiring to cope with the impact of Brexit.

Last month, Sajid Javid, the chancellor, said the government would meet pledges for extra spending on police, defence, the NHS and Brexit planning after he agreed to a one-year extension from next March to Whitehall budget plans.

A 0.5% slide in government revenues also contributed to the worsening figures after an increase in the personal allowance – the amount people can earn without paying income tax – reduced the Treasury’s revenues.

Over the first four months of the financial year, borrowing totalled £16bn – 60% higher than in the same period in 2018-19.

John McDonnell, the shadow chancellor, said extra borrowing to prepare for a no-deal Brexit was irresponsible and showed the government was mismanaging the economy.

“Instead of borrowing yet more money to fund their failed programme of tax cuts, the priority has to be reversing the damage done to schools and social care, and stopping the rollout of universal credit which is causing so much hardship,” he said.

Howard Archer, the chief economic adviser to the EY Item Club, said the cumulative effect was likely to be the public sector net borrowing requirement being £8.5bn higher by the end of the year than the Office for Budget Responsibility has forecast.

The OBR, which provides independent economic forecasts for the Treasury, predicted in March that the government’s net borrowing was already likely to increase from £23.6bn in 2018-19 to £29.3bn in this financial year.

“July is typically a month where the public finances are in surplus, given that it sees many medium-sized and large companies, as well as oil and gas firms, make corporation tax payments. While the second payment on account for self-assessment liabilities is also due,” he said.

“But central government revenues were down 0.5% on a year earlier, reflecting a combination of weak activity and the generous increases in income tax allowances which came into force in April. At the same time, current expenditure has continued to run at a pace well ahead of that implied by the full-year plans.”