Public sector net borrowing surplus due to Royal Mail windfall

Tuesday, 22 May 2012 03:45

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The UK’s public finances recorded a record surplus in April, latest official figures reveal.

According to the Office for National Statistics (ONS), public sector net borrowing excluding financial interventions showed a surplus of £16.5 billion last month – a huge swing from the deficit of £9.1 billion posted in April 2011.

It marks a good start in the first month of the new fiscal year. However, the figures have been sweetened by a gain of £28 billion in pension plan assets from Royal Mail, acquired by the Government in preparation for selling off part of the postal organisation.

The European Union allowed the transfer of the pension assets from the Royal Mail to the state coffers but the long-term effect of this move will result in the taxpayer paying out an estimated £37.5 billion in pension payments attached to the scheme.

In addition, profits from the Bank of England’s special liquidity scheme for banks added £2.3 billion to the surplus total.

Taking out the Royal Mail sum, public sector net borrowing totalled £13.8 billion.

Howard Archer, Chief UK & European Economist at IHS Global said: "This immediately puts the Chancellor on the back foot as he aims to trim the underlying Public Sector Net Borrowing Requirement to £120 billion from a downwardly revised £124.4 billion in 2011/12.

"The Chancellor needs the economy to return to growth sooner rather than later if he is to achieve his fiscal targets for 2012/13 and obviously much will depend on events in Greece." 

The one-off £28 billion transfer will eventually be cancelled out by liabilities of £38 billion expected to emerge in the public balance sheet over the coming years.

Meanwhile, the ONS figures also show that, excluding financial interventions, the public sector current budget was in deficit by £12.4 billion in April, some £4.4 billion higher than in April 2011, when there was a deficit of £8 billion.

Public sector net debt at the end of April 2012 was £1006.3 billion, or 64.8 per cent of GDP, compared with £909.6 billion (60.6 per cent of GDP) at the end of April 2011.

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