Public finances boosted by EU credit, surging VAT receipts

LONDON (Reuters) – Britain’s budget deficit narrowed by much more than expected last month, helped by an unusually large credit from the European Union and the strongest value-added tax receipts on record.

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FILE PHOTO: Union Flags and European Union flags fly near the Elizabeth Tower, housing the Big Ben bell, during the anti-Brexit ‘People’s March for Europe’, in Parliament Square in central London, Britain September 9, 2017. REUTERS/Tolga Akmen/File Photo

The official data published on Tuesday will help finance minister Philip Hammond to meet his latest fiscal targets.

Britain’s economy slowed less last year than most economists had predicted after the Brexit vote in 2016, and tax revenues have largely held up for the government.

Public sector net borrowing, excluding state-owned banks, totalled 2.6 billion pounds last month, almost half the borrowing in December 2016 and way below a median forecast of 5.0 billion pounds in a Reuters poll of economists.

The Office for National Statistics said the public finances were helped by a 1.2 billion-pound credit from the EU which reflected the bloc’s smaller overall budget and updated economic forecasts for member countries.

Many countries in the EU saw stronger-than-expected economic growth last year, outperforming Britain.

British public borrowing since the start of the financial year in April totalled 50 billion pounds, nearly 12 percent less than in the same period of 2016 and the lowest year-to-date total since 2007, the ONS said.

That leaves Hammond on course to meet his target of 49.9 billion pounds in the 12 months to the end of March 2018 – equivalent to 2.4 percent of gross domestic product – thanks to stronger-than-expected tax revenues.

Figures for January, when self-declared income tax returns flood in, are likely to show a budget surplus.

The ONS said value-added tax receipts were the strongest for any month on record in December, up by an annual 4.9 percent to 12.3 billion pounds.