Reading Time | 2 mins

Budget deficit shows signs of improvement

Share this article

The UK’s budget deficit was lower than anticipated last month, suggesting that the country’s public finances have seen the worst of the recession.

In May, the government borrowed £16 billion, down from the £17.4 billion for the same period a year ago and £2 billion less than had been forecast.

That said, the overall national debt climbed to £903 billion, the equivalent of 62.2 per cent of GDP.

One reason for the improved figures was a rise in the amount of tax received by the government. Income tax receipts were 11 per cent better than for a year ago, the result of more earners moving into higher tax brackets.

VAT receipts also showed a strengthening, up by 25 per cent on the back of extra consumer spending and the return to the old rate of 17.5 per cent.

Commenting on the figures, David Kern, chief economist at the British Chambers of Commerce (BCC), welcomed the news but urged the government to continue with its policy of cutting public spending.

Mr Kern said: “These figures were slightly better-than-expected and show that the deficit has started easing – even before the government begins to implement its deficit-reduction plan. However, there is no room for complacency and a credible reduction programme is vital to ensure we preserve our credit rating.

“The new figures reinforce hopes that a plan to cut the deficit can be carried out without causing undue damage to the economy.”

He described the forthcoming Budget as a huge challenge for the coalition, saying that while the markets must be left in no doubt that the government is serious about spending cuts, it is critical to avoid hasty measures that risk pushing the economy back into recession.

Mr Kern added: “There should be a freeze in the total public sector wage bill and reform of unaffordable public pensions. But, the Chancellor should steer clear of policies that restrict the private sector’s ability to lead a sustainable recovery.”