IFS warns UK finances facing £14bn shortfall

The Institute for Fiscal Studies (IFS) warned the UK government is facing a shortfall of up to £14 billion in public finances for the 2016−17 financial year.

“At the half way point in the financial year, tax receipts have disappointed while central government spending has been slightly lower than official forecasts for the year imply,” said Thomas Pope, research economist at the IFS.

“Overall, borrowing looks set to be higher than the Office for Budget Responsibility forecast in March, possibly by a reasonable margin.

“The trend so far suggests that, over the year as a whole, receipts could undershoot by £14 billion.”

The IFS said the Office for National Statistics (ONS) and the UK Treasury had published “Public Sector Finances September 2016” so the IFS now had details of central government receipts, central government spending, public sector net investment, borrowing and debt for the first half of financial year 2016−17.

“On November 23rd, the new chancellor will present his response to a much changed economic outlook at the Autumn Statement,” said Pope.

“Borrowing looks likely to be larger this year than his predecessor expected in March, which will make the challenge he faces more difficult.”

Pope said the next few months might however contain some better news on receipts.

He said the recent rise in income tax on dividend income is likely to have led to some owner-managers bringing forward their dividend payments.

“As a result we can expect strong growth in income tax receipts on dividend payments to arrive around the self-assessment deadline at the end of January,” said Pope.

“Therefore a better estimate for receipts this year is for an undershoot of £8 billion, driven by with weak receipts from income tax and National Insurance on earnings, and from VAT on purchases.”

The IFS said that extrapolating from the year to date, UK government receipts are on course to be £14 billion down on the OBR’s forecast from March.

In particular, it said PAYE, NICs and VAT receipts look set to disappoint, while strong corporation tax receipts should offset this a little.

Due to strong expected growth in self-assessment receipts, which will mostly come in January and February, a better central estimate would be that receipts might miss their forecast by around £8 billion.

It said stamp duty land tax receipts have grown less quickly than the OBR forecast for the year as a whole, likely due to a reduction in property transactions.

The OBR highlighted a slowdown in high end residential and commercial purchases, particularly in London.

On the other hand, stamp duty on shares has been helped by the increase in share prices and volatility in the market, which leads to more transactions.