“A marked deterioration in the public finances means Sajid Javid will have to relax borrowing limits if the government is to boost spending and cut taxes before an early general election.
With the Treasury preparing for the the autumn budget, data from the Office for National Statistics (ONS) showed that the slowing economy and a series of accounting changes had made life more difficult for the chancellor.
Boris Johnson’s government has pledged higher spending for the NHS, schools and the police since it was formed in late July, but against the backdrop of an economy flirting with recession. The ONS said borrowing in the first five months of the financial year was up 28% on the same period a year ago, at more than £31bn.
In addition, changes to the way the ONS accounts for student debt and public sector pensions, together with new corporation tax data, means the size of the deficit in the last full financial year, 2018-19, has almost doubled. A deficit of £23.6bn has been revised up to £41.3bn.
Analysts said that if the trend for the first months of 2019-20 continued for the rest of the year the deficit would be close to £53bn, £12bn higher than the government’s fiscal watchdog, the Office for Budget Responsibility, estimated in March.
The government’s fiscal rules stipulate that borrowing in 2020-21 should be below 2% of national output after taking into account the state of the economy. Achieving that would require either spending cuts or tax increases amounting to 0.5% of gross domestic product – about £10bn.
Andrew Wishart, the UK economist at Capital Economics, said the existing fiscal target was “dead in the water”. …”