Tory deficit targets in tatters as leaked Treasury papers expose £16bn ‘black hole’

Britain's Chancellor of the Exchequer Philip Hammond speaks at the Conservative Party conference in Birmingham, Britain October 3, 2016. © Toby Melville
A leaked Treasury document reveals the government faces a black hole of up to £16 billion (US$19.5 billion) in its finances this year and is “unlikely” to meet its target on deficit reduction.

The briefing paper, marked as “sensitive,” blamed the shortfall on the failure of tax returns to come in at the expected level.

It also revealed government borrowing has been higher than expected, describing the failing as a “continuing run of disappointing data.

The document, obtained by Labour, stated: “Six months in, the deficit is only £2 billion lower than in the same period a year ago.”

For the year to date, the deficit is £2.3 billion lower than last year; at a fall of 4.8 percent, well behind the 27.0 percent reduction forecast.”

The document says more tax receipts will come in over the course of the year, but acknowledges this is “unlikely” to significantly reduce the deficit.

Compared to last year, [tax] receipts growth is back-loaded so the rate (all else equal) should pick up. However, this is unlikely to bring deficit reduction entirely back on track,” the document reads.

Media commentators are likely to double the effect on borrowing for the year-to-date as we are now halfway through the year, which would imply a severe worsening in the public finances.

For instance, this would imply overshooting the PSNB [public sector net borrowing] forecast for 16-17 by £15.9 billion.”

The disclosure will prove embarrassing for Chancellor Philip Hammond, who has insisted the government is “committed to fiscal discipline.”

Labour was quick to point out the “Tory failing on the economy” ahead of the chancellor’s autumn statement.

It refers to a run of disappointing data and the unlikelihood of getting deficit reduction back on track, officially confirming the Tory failure on the economy,” Shadow Chancellor John McDonnell said.

Now we’ve had it from the official civil servants, it’s time the Tories came clean.

They should drop the spin and admit the truth – they are failing on the public finances and working people are paying the price.”

A Treasury spokesman said: “The government is committed to balancing the books over a sensible period of time, in a way that allows space to support the economy.