The Chancellor will receive a boost next week as a flood of corporation tax payments and profits from the Government’s Royal Mail share sale keep Britain on track for a “substantial” borrowing undershoot this year.
In the final set of public finances data before George Osborne delivers his Autumn Statement next month, figures for October are expected to show Britain’s recovery is gaining traction, reports The Telegraph.
October is traditionally strong for corporation tax receipts and payments from oil and gas firms, and economists predict borrowing will fall to £7.3bn, from £11.3bn in September and £8.3bn in October 2012.
Nomura believes public-sector net borrowing (PSNB), excluding bank bail-outs, will be as low as £3.9bn in October, as stronger employment growth feeds through to higher tax revenues.
Michael Saunders, chief UK economist at Citigroup, said the Office for Budget Responsibility (OBR), the government forecaster, could “substantially” revise down its borrowing predictions next month because of Britain’s better-than-expected growth.
“We’re heading for a very large revenue overshoot and deficit undershoot this year, next year and the year after,” he said.
Citigroup estimates the Chancellor could undershoot OBR’s current borrowing targets by up to £55bn over the course of this Parliament if Britain’s growth rate continues on the same trajectory.
Mr Saunders also said the improvement in public finances was likely to strengthen over the coming months as the full effect of Britain’s brighter prospects feeds through to the data.
According to the OBR’s March projections, Britain will borrow £120bn this fiscal year, and the economy will grow by 0.6pc in 2013. However, economists at RBS said the figure could be nearer £105bn, based on more recent projections.
“It’s important to note that this revenue overshoot is not due to special factors – it’s because in terms of growth, we’re roughly twice what the OBR expected at the beginning of the year,” said Mr Saunders.
Some £1.7bn from the sale of part of the state’s stake in Royal Mail last month will also boost October’s public finances. Although profits will not reduce PSNB directly, they will affect the Government’s net cash requirement – used to assess the amount of gilts the Treasury issues. The profits will also cut the UK’s debt.
Earlier this week, the Bank of England upgraded its growth forecasts to 1.6pc in 2013 and 2.8pc in 2014, meaning the UK is on track to return to pre-crisis growth levels.