Government Borrowing Down On Last Year

The Public Sector Finance statistics for March 2014 were published on 23 April 2014. In March 2014, public sector net borrowing was £6.7, £4.7bn lower compared to £11.4bn in March 2013. Over the financial year 2013-14 PSNB excluding the temporary effects of financial intervention and the impact of cash transfers from the asset purchasing facility and the Royal Mail Pension Plan transfer was £107.7bn.

Central government net cash requirement was £75.4bn, lower by £29.6bn than the £105bn in 2012-13. In March it was £22.2bn. The sale of the Lloyds Banking Group reduced the public sector net cash requirement by £4.2bn. Public sector net debt for March 2014 was £1268.7 equivalent to 75.8% GDP.

In the UK the PSNB Sectoral Breakdown consists of figures from the 4 main sub-sectors: central government, local government, non-financial public corporations and financial corporations ie public sector banking groups. The largest share of borrowing is accounted for by central government. In March 2014, the sectoral breakdown of general government borrowing of £7.1bn was as follows: central government £7.2bn, local government -£0.1bn, non-financial public corporations -£0.4bn (PSNB=£6.7bn) and public sector banking groups -£1.8bn (PSNB=£4.9).

Current budget equals current receipts minus current expenditure and in March 2014 it stood at -£79.6. Current receipts were £49.8bn 5.7% up on last March. The main increases were from VAT (£0.6bn or 5.8%) and income tax (7.8% or £1bn). PAYE varies little during the year. Other receipts were from stamp duties (£1.1bn in March and £12.6bn over financial year 2013-14).

Central government current expenditure accrued to £52.4bn, 1.3% lower than March 2013. Over the financial year accrued government expenditure was £640.2bn 1.4% up on the previous year. Net social benefit expenditure was £193.4bn and other current expenditure was £398.7bn or £6.7bn higher. In 2012-13 local authorities got almost all their funding from redistributed business rates from DCLG rather than the Revenue Support Grant. In 2013-14 local authorities retained half their business rates with the remainder redistributed through the Revenue Support Grant.

In 2012-13 central government accrued current expenditure was £631.1bn, £12bn up on 2011-12. The £12bn was composed of £10bn increase in net social benefits mostly pension benefits, £0.8bn decrease in interest payments and £23.8bn increase in other current expenditure. Net social benefits increases are largely due to the 5.2% uprating of benefits in line with the CPI.

Increase In Budget Deficit In May

The UK Government reported a current budget deficit of £15.3bn in May 2011. Net borrowing was £17.4bn and net debt was £920.9bn. These figures exclude the temporary effects of financial intervention. Total receipts were £38bn and total expenditure was £51.7bn. Net investment was £2.7bn after accounting for depreciation of £0.6bn.

Budget 2010

The main budget announcements from the five-year plan set out by Chancellor of the Exchequer George Osborne yesterday set out actions to reduce the budget deficit, to introduce a 'fairer' tax system, encourage enterprise and support long-term growth in the economy. The Coalition Government's three core values of responsibility, freedom and fairness are the basis for the Budget intentions to help rebalance the economy and provide conditions for sustainable growth.

In order to reduce the deficit the Chancellor has set a fiscal mandate to achieve a current balance by the end of the five-year period 2015-16; a target for debt to ensure sustainable public finances; spending reductions of £31.9bn/year by 2014-15 and tax increases of £8.2bn; £29.8bn of savings from current expenditure and £2.2bn from gross public investment; increase in VAT to 20%; indurance Premium Tax to 6%; a two year pay freeze on public sector pay (except those on less than £21,000pa who will get an additional £250).

Conditions for enterprise and sustainable growth were also set out to make UK more competitive by reducing regulation and providing tax breaks. Corporation tax rates will be reduced from 28% to 24%; the small profits rate will be reduced from 21% to 20%; NICs holiday for new businesses in certain areas; an increase in the Enterprise Finance Guarantee and a new Enterprise Capital Fund; a Regional Growth Fund in 2011-12 and 2012-13 for increases in business employment and growth.

The deficit reduction burden will be shared, the Budget says, by refocusing the tax and benefit framework and 'protecting the most vulnerable in society'. The Government want to encourage people to take personal responsibility, work hard and save responsibly. The personal allowance for under 65s will be increased by £1,000 to £7475 in 2011-12 taking 880,000 out of income tax; capital gains tax increase from 18% to 28% for higher rates and an extension of the 10% rate for entrepreneurial activites from first £2m to first £5m of qualifying gains made over a lifetime; a council tax freeze; a levy on banks balance sheets from January 2011. The basic State Pension will be uprated by a triple guarantee of earnings or 2.5% whichever is highest, from April 2011; reduction in tax credits for those with household income over £40,000 from £50,000; reducing annual allowance of pension tax relief; indexing benefits to the CPI instead of the RPI to reflect more fairly benefits claimants experiences.

The Government added that the Budget measures will pay for the past and plan for the future. They represent a first step in the transformation of the economy, rebalancing growth and lead to sustainable, private sector led growth.

Perspectives On The Coalition's Programme

The Conservative/Liberal Democrat coalition recently set out it's programme for government in the Queen's Speech during the State Opening of Parliament. There were a number of responses to the Queen's Speech from industry.

The CBI agreed with the Coalition putting deficit reduction and securing economic growth at the heart of it's programme. The CBI called the speech ambitious and far reaching and said the Government has a sense of responsibility. They welcomed the NICs measures because the economy should be encouraged to create jobs, they were encouraged by the tax and benefits proposals and the reforms affecting the responsibilities of the Bank of England. The creation of an Office for Budget Resposibility (OBR) was welcomed as something the like of which they have been calling for some time to add some transparency and credibility. On planning they say that a new major renewal of infrastructure is needed but that the Government had some innovative ideas that may help local authorities accept new developments. They welcomed the Government's commitment to the climate change agenda and that emissions reductions targets could be reached if consumers and business improve energy efficiency. They support the Goverment's plan to increase and improve the diversity of education providers to help with failing schools and to give young people the knowledge and skills they need to be successful and they also support the idea of creating a single welfare-to-work programme tailoring to unique needs. The CBI believes the Government should give more scope in innovation and efficiency to the re-engineering of the health service and other public services without affecting the quality of services and that private sector providers deliver high-quality services within the NHS.

The FSB welcomes the plan to safeguard jobs, support the economy, simplify the tax system and the reversal of the NICs plan. It also welcomes the plan to support high-speed broadband Internet connections as more than half of small businesses rely on the Internet for up to 50% of their business. It would help, in particular, small firms in rural areas. The FSB will be looking into the proposals to introduce more flexible working. It also welcomes the proposals for a universal postal system.

The NFU saw the speech as a 'cuts' agenda containing numerous Bills aimed at facilitating the £6bn of cuts necessary to cut the budget deficit and restore economic growth. They noted a lack of Bills relating to agriculture and the food industry and the fact that Defra was not given any primary legislation to pilot for the next 18 months. The NFU were interested in proposals to reduce the number of quangos and whether they will affect Defra in any way. Also of interest were the green energy proposals for energy efficiency in homes and businesses. The proposed Decentralisation and Localism Bill is central to the drive to devolve greater powers to councils and local communities over planning. Regional Development Agencies may be replaced with Local Economic Partnerships if the propoals are successful. NICs proposals for employees may still go ahead even if the plans for employers and reversed. The NFU were also interested in the proposed commitment to hold a referendum if there are any more EU Treaty measures that directly affect UK sovereignty. Non-primary legislation of interest included the high-speed Internet connections proposals as it will include consideration of increasing availablity of broadband in rural areas. The NFU also noted the absence of proposals for flood provision and sharing the cost and responsibility for animal health.

The CLA welcomed the proposed Energy Bill saying it is a chance to improve energy efficiency. They warned that the proposed Decentralisation and Localism Bill could create more red tape around gaining planning permission. The CLA insists that rural businesses should not be left behind in the roll-out of high-speed broadband connections.

The TUC said that the Speech contained some important issues they could welcome like restoring the state pension link with earnings, cracking down on high-risk activities in the City and an the plans for green energy. They saw possible positive changes in extending flexible working rights to all employees and action to close the pay gap. However, plans to end initiatives to get young people into work, the abolishing of key public bodies and the resulting public sector job losses could only worsen the economic situation. They also emphasised that the focus on reducing the deficit is a mistake. The focus should have been on restoring growth and reducing unemployment.

The Cabinet Office has also announced that there will be an emergency Budget on 22 June that will set out a comprehensive and credible plan to eliminate the deficit over the course of the Parliament. The independent Office for Budget Responsibility has been created for best practice in fiscal transparency.

Marketers More Optimistic

The latest Bellwether Report from the IPA says that marketing budgets have been revised upwards for the first time in two and a half years. Firms are confident about the future and expect the recovery to continue. The main media budgets are up for the first time since Q3 2007 and Internet budgets were adjusted for the third quarter in a row but the biggest since since Q1 2008. Sales promotion and direct marketing budgets were unchanged. Below the line marketing budgets such as PR and events was the only sector to revise spend downwards.

Increases In Budget Deficit And Net Borrowing

Public finances estimates released by the ONS suggest that in May there was a current budget deficit of £17.5bn compared with £10.6 bn last year and net borrowing of £19.9bn up from £12.2 bn last year, a difference of £7.6bn. At the end of May, public sector net debt (PSND) was £774.8bn or 54.7% of GDP. At the same time last year PSND was £629bn or 43.6% of GDP. Public sector net investment was £2.3bn in May. The public sector net cash requirement was £18.8bn, an increase of £9.2bn on last year when it was £9.6bn. The Institute of Fiscal Studies reported that Government borrowing had increased more over the last 2 months than the Budget had predicted and incomes, taxes and NI contributions had fallen faster and are 6.8% lower than last year. It is important, they said, that the Treasury generate as much revenue as they can from every pound of income or spending. VAT receipts are 19% lower and corporation tax is 26.9% lower. Net social spending was 7.9% higher. The Budget predicted an 8.1% increase over 2009-10. Debt interest payments came to £3.3bn in May. Spending on public services was 6.7% higher than last year and the Budget allowed for an increase of 8.4%.

Output Prices Up, Input Prices Down

Output prices were up 1.2% in year-on-year figures to April compared with 2.0% on year to March. Monthly figures were up 0.6% March to April reflecting the rise in petroleum products originally announced in the 2007 Budget and additional increases in excise duty. The excise duty on products like petrol, tobacco and alcoholic drinks may have added 0.2% to the overall output index. Excluding duty the annual index was up 0.9% and the monthly 0.4%. The output prices index excluding food and beverages rose 2.4% in year to April and the monthly index was up by 0.4%.

Input prices fell by 5.0% in the year to April and by 1.0% in the month March to April compared to 3.9% last year. It is the largest annual decrease since a fall of 5.3% in 2002. The fall reflects an 8.2% fall in the price of fuel in the month offset by a rise in crude oil prices. The prices of imported materials fell 1.0% in the month. Input prices for manufacturing excluding food and beverages rose by 3.3% in the year compared with 7.6% in year to March but fell 0.7% in the month.