The government borrowed less than expected in May when the reopening of the economy prompted a rush to the shops and pushed VAT and fuel duty receipts higher.
Official figures showed borrowing in May was £24.3bn, undershooting the £28.5bn estimate by the Office for Budget Responsibility (OBR) by £4.2bn.
It was the second highest borrowing total for the month of May since records began in 1993, but was £19.4bn less than May 2020 when the impact of the first coronanvirus lockdown was reflected in the public finances.
Analysts said the stronger-than-expected economic rebound this year was on course to hand Rishi Sunak a £30bn windfall compared with the OBR’s forecast for the current financial year.
The Office for National Statistics warned that its figures were estimates that were more likely to be revised than in previous periods due to the difficulties of collecting data during the pandemic.
However, the Treasury is likely to be cheered by central government receipts that came in at £56.9bn in May, well above the OBR’s £55.2bn forecast.
VAT receipts were 23% higher in May than a year earlier, at £12.2bn, while PAYE income tax receipts were 5.3% higher at £14.1bn. Fuel duty receipts more than doubled compared with May 2020 to £2.3bn.
Central government spending of £81.8bn was also lower than the £84.9bn estimated by the OBR, mainly due to a smaller-than-expected quarterly grant payment to self-employed people.
The deficit in spending by local government and public corporations was higher than the OBR expected, forcing them to increase their borrowing.
Philip Shaw, an economist at Investec, said: “None of this is to say the picture for public finances is rosy. The deficit is still very much inflated by pandemic-related outlays, with current expenditure during May a whopping 28.6% above May 2019 levels.”
Isabel Stockton, a research economist at the Institute for Fiscal Studies said: “Looking further ahead the path of borrowing will depend on the completeness of the economic recovery, whether the income tax and corporation tax rises announced in the Budget go ahead as planned and – as seems likely – the degree to which this year’s Spending Review ends up being more generous than the figures currently penciled in by the Chancellor.”
The ONS said public sector net borrowing, which excludes publicly owned banks from its calculation, for the full year to March was estimated to have been £299.2bn, revised down by £1.1bn from last month’s provisional estimate. After unprecedented spending by the NHS and other government departments on tackling the pandemic, it remains the highest borrowing since financial year records began in 1946.
Michal Stelmach, a senior economist at KPMG, said the public finances should benefit from the winding down of the furlough scheme over the next few months.
“Spending should continue to recover in the coming months as the economy absorbs more furloughed workers during the reopening phase,” he said.
“The furlough scheme, which the OBR expected to cost nearly £50bn less this financial year, is likely to undershoot that forecast thanks to stronger demand for staff and some companies returning unused cash to the exchequer.”