Official data from the Office for National Statistics (ONS) has revealed that UK government borrowing fell by £20bn to £52bn in the year to the end of March 2017.
This fall sees government borrowing plunge to its lowest levels of borrowing since the financial crisis of 2008.
However, the Office for Budget Responsibility (OBR) forecast before last month’s Spring Budget 2017 that government borrowing would rise again this year with tax receipts predicted to decline.
Overall, government borrowing was 2.6% of gross domestic product (GDP) in the latest financial year, in line with OBR predictions. That’s compared with government borrowing at almost 10% of GDP just months after the global recession took hold.
Despite the fall in government borrowing during the last 12 months, UK economists believe this was aided by one-off factors relating to tax receipts and deficit figures.
John Hawksworth, economist, PricewaterhouseCoopers, said: “It is good news that the deficit is coming down, but it is too soon to be complacent about the state of the public finances.
“As the OBR said last month, a number of one-off factors relating to the timing of tax receipts and spending flattered the deficit figures for 2016-17 but are likely to be reversed in 2017-18.”
Mr Hawksworth warned that increasing inflation, an ever-ageing population and rising healthcare costs will continue to put a strain on the public purse.
“So while the deficit is now approaching a more sustainable level, there will still be some tough choices ahead on tax and spending for the next government,” added Hawksworth.
Samuel Tombs, UK economist, Pantheon Macroeconomics, concurs with the view that borrowing will rise again this financial year and would only head further towards a surplus if taxes were increased.
“The OBR expects borrowing to rise to £58.3m this year, nearly 3% of GDP, as self-assessment tax receipts fall back,” said Tombs.
“The chance that the Autumn Budget contains net tax rises – like all of the last six post-election Budgets have done – is very high.”
It’s not yet known whether the Conservatives will maintain their pledge to freeze income tax, national insurance and VAT rates as part of their manifesto for next month’s snap General Election.